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OUTLINES AND QUESTIONS 



PRINCIPLES OF ECONOMICS 



By 
LAWRENCE DkGRAEE, Ph. B., LL. M., 

Instiiictnr in Political utul Sucial Science, Highland Park College. 
Des Mdines, Iowa. Author of "Outlines and Questions 
cm the Principles of Government 
in the Tinted States." 



FOR THE USE OF TEACHERS AND 
STUDENTS 



The teacher is usually the waiter at the iatellectual table, 

while the cook is the author of the text-books 

which he uses. It is, however, an aim 

of higher education to unite 

these functions."' 



A.' F1..\N.\G.A.N "cblVfPAN'Y' " '' 



THE LIBRARY OF 

CONGRESS,, 
Two Copies Received 

MAR. 28 1901 

Copyright entry 

CLASS <5lyXXc. N». 

COPY B. 



K'' 



C0PYKIGHT,I9OI, 

By a. FLANAGAN COMPANY 



INTRODUCTORY 



Prof. ^. TI. Patton wrote; '• In a complete and practical educa- 
tion of American youth, it is fitting that the stud}' of Political 
Keonomy should hold an honored place, inasmuch as this branch 
of knowledge, so suggestive in its main principles, is valuable to 
both sexes -in the active duties of life.' 

It is but recently that the study of the principles of Political 
Economy has been given its proper place in the curriculum of our 
secondary schools and colleges. This is a movement in the right 
direction. Our American 3'outh should study our social and indus- 
trial conditions. Economic conditions are constantly changing, 
and, consequently. Economic Science is and must be one of slow 
but continuous growth. It is incumbent upon the teacher, the 
legislator and the citizen to become acfjuainted with the spirit and 
meaning of social and economic institutions. 

These Outlines and Questions are iutended to be suggestive, and 
to be used as supplementary to some good text-book. The author 
believes that any outline that sevves to suggest definition and 
material, and directs the student in his researches, has an educa- 
tional function. , "With a hope that this little pamphlet will serve 
this purpose, it is commended to the consideration of teachers and 
students. 

•' There must he discussion to sJimo how experience is to he inter- 
preted. Wrong opinions (uul prnctiees grddudlly yield to fact and argu- 
ment ; hut facts and arguments, to produce any effect on the m,ind, must 
he hrought hefore it. ^ery few facts are aide to tell their awn story, 
without comments to hring out their meaning. The uhole strength and 
value, then, of human judgment, depending on the one j)r(iperty, that 
it can he set right when it is wrong, reliance can be placed on it only 
when the means of setting it right are kept constantly at hand. In the 
case of any person ichose Judgment is really deserving of confidence, 
how ha.s it h(come sof Becart.w he has kept his mind open tn criticism 
ufhis opinions and conduct. Because it has heen his practice fo listen 



INTRODUCTORY, 



to all that could he said against him; to profit hy as much of it as was 
just, and expound to himself, and upon occasions to others, the fallacy 
of what loas fallacirms. 

" Tlie steady hahit of correcting and completing his oton ojnnion hy 
collating it loith those of others, so far from causing doubt and hesita- 
tion in carrying it into practice, is the only stable foundation for a jvst 
reliance on it; for, being cognizant of all that can, at least obviously, 
be said against him, and having taken up his position against all gain- 
say ers, knowing that he has sought for objections and difficulties instead 
of avoiding them, and has shut out no light ichich can be thrown, upon 
the subject from any quarter — he has a right to think his judgment 
better than that of any person or any multitude, who have not gone 
through a similar j^rocess." — J. S. MiLL, Essay on Liberty. 



CONTENTS. 

l'\<iK. 

General Notions ...... T 

Wealth and Value ..... 18 

Production ....■■• -6 

Exchange ...... -^2 

Consumption ... . . 84 

Distribution ...■■• ^fi 
Taxation . . • .101 

Scope of Political Econ(».mv .... 1'jT 



E^CONONITCS. 



GENEKAL NOTIONS. 
Definitions. 

1. Political Economy is the science of man in society in relation 
to his material wants and desires. 

2. •• Political Economy or Economics is a study of man's actions 
in the ordinary business of life; it inquires how he gets his 
income and how he uses it. ' — Alfred MarshaU. 

?>. '• Political Economy treats of the commercial and industrial 
activities of men from the standpoint of values and markets." 
— If. ./. Davenport. 

4. An economic law is a statement of a uniformity in economic 
phenomena. 

Etymology. 

From OIKOS, a house, and N'OMOS, a law, crnnnmii, the law 
which regulates the household, houseJioJJ according to the 
Greeks, comprehending all the goods in possession of the 
family) and political, from FOLIS (civitas), the city, ex- 
tending its application to society or the nation at large. 

Place. 

Anthropology. 
Sociology. 
Economics. 
Civics. 
Ethics. 
Law. 
Finance, etc. 

Aim. 

The practical aim of Political Economy is to enable the student 
to judge and predict with greater accuracy the effects of govern 
mental and social action on the wealth and welfare of the nation. 



8 PRINCIPLES OF ECONOMICS. 

Premises. 

1. Facts of human uaturL". 

2. Facts of human societ}'. 

3. Facts of the physical constitution of the earth. 

4. Data of all sciences taken so far as they can be related to 
the accumulation of wealth. 

The two schools, English and (3rerman, disagree some- 
what with respect to the premises of Economics, the latter 
school accepting a larger field. The line of division is not 
well-defined. American writers follow the German aim and 
method generally. 

Method. 

Method in scientific language means the road that must 
be followed for the discovery of truth. — Gide. 

1. Deduction. 

The deductive method starts from certain general prin- 
ciples or universal truths that are regarded as indisputable, 
and proceeds by way of logical consequence to deduce an 
indefinite series of propositions. It is reasoning from the 
general to the particular. 

2. Induction. 

The inductive method starts from certain particular facts, 
the result of observation and investigation, and proceeds by 
way of logical consequence to discover general propositions 
or universal truths. It is reasoning from the particular to 
the general. 

3. The adoption of both methods is advocated by some econo- 
mists as the only safe method to discover economic truths. 

4. Prof. Charles Gride holds both methods too absolute, and offers 
the following as the real method : — 

First. By the observation of facts without an}- pre-con- 
ceived notion, eyen those which at first sight appear to be 
the most trivial. 

Second. By the imagination of a general explanation 
which will enable us to establish mutual relations between 
certain groups of facts ; i.e., by the forming of an hypoth- 
esis. 

Third. By the verification of the validity of this hypoth- 
esis, by seeking, by the aid of experiment, if possible, at 



I'RlNf'lPr.KS OF KCONOMICS. !1 

any rate ])y special!}- directed <)l»servatiuiis, to discover 
whether it exact!}- corresponds with tiie facts. 

Is there a Science of Political Economy ? 

1. Science implies Jmcs, which are fixed and regidar in their 
operation. 

2. Comte held "the test of any science lies in tlie power to 
predict.'" Can Political Economy predict? Cairnes holds 
that economic prevision is a prevision not of events, but of 
tendencies. 

3. In stating an economic law we say "other conditions being 
equal, such and such isso. " Do we need to preface the 
laws of physics or chemistry in this way ? 

4. Experiment is almost impossible. 

5. It seems each nation attempts an economy of its own — a 
national economy. Each age, also, works out its own system. 

6. Social and eyonomic facts are necessaril}' limited and gener- 
ally inaccurate, hence conclusions differ widely. 

Difficulties Political Economy Encounters. 

1. The writings are colored by the individual writers opinion. 

2. The subject is oftentimes treated in close affinity with ques- 
tions of government, sociology, etc. 

;*). The subject is viewed by some as too common and familiar 
to require discussion. 

4. The conflicting ideas of the college theorist and the man of 
practical affairs often bring the subject into disrepute. 

5. EiVery person of ordinary intelligence feels that his opinions 
on economic questions are entitled to consideration, hence 
the liberty of formulating and expressing so-called economic 
principles. 

6. Conflict of theory among economists. 

7. Confusion of the nomenclature. 

The vocabulary of economists contains words whose pop- 
ular and scientific meanings are (luite different. The basic 
word of the science, n-idlfh, yet awaits a definition. 

Divisions of the Subject. 

I. Production. 

II. [Exchange]. 



10 PRINCIPLES OF ECONOMICS. 

III. Distribution. 

IV. Consuinptiou. . 

Schools ot Political Economy. 

I. As enumei-ated by Prof. Gide. 

1. ]jiberal or Classical. 

(a) This school claims that human societies are governed 
by natural laws which we could not alter one jot, even if we 
wished, since they are not of our making. Moreover, we 
have not the least interest in modifying them, even if 
we could ; for they are good, or at any rate the best possible. 
Their gospel is summed up in four words : " Laissez faire, 
laissez passer." 

(b) Represented by Beaulieu, Bastiat, Eicardo, etc. 

(c) Criticism. 

1. A very marked tendency to optimism. 

2. Not logical or legitimate to conclude that because 
natural laws are permanent and immutable, economic facts 
and institutions have the same character of permanence. 

3. There is no jus divliia governing wages, pi'ivate 
property, etc. Economic institutions do change even at 
man's bidding. 

2. The Socialist School. { Collectivism. ) 

(a) This school claims that private property and free 
competition are vices in modern society, and tend to sacrifice 
social to private interest. The socialist is naturally disposed 
to extend as far as possible the functions of collective 
powers, represented by the state or municipality. It would 
result in the creation of a new state. 

(b) Kepresented by Proudhon, Wagner, Karl Marx, 
Henry George, etc. 

(c) Criticism. 

The two opposing theories as to the proper sphere of 
the state, individualism and socialism, stand for two great 
truths. 

The constant intrusion of the state on fields of activity 
previously given to the individual, is a natural result of the 
constant increase in the separation of employments necessi- 
tatino- more extensive organization. It is impossible to 



i>aiNCll'LES OK ECONOMICS. 11 

approve or disapprove a prior! of every intrusion of the state 
into fields hitherto set aside for the individual. Whenever 
these intrusions promise definitely the increase of the inllu- 
ence of the individual, it is desired. The burden of the 
proof is thrown upon him who would have the state advance 
into new fields. There is no conclusive presumption oneway 
or the other that the state should assume new functions. 

Everyday experience teaches us that associations, large or 
small, are worth not a jot more than the individuals of whom 
the}' are composed. 

Man recjuircs one or two incentives: love or compulsion. 
Would Socialism weaken the effort of the individual to do 
and to work? 

8. The Catholic or Christian School. 

1 This school desires to re-establish social concord by 
the influence of a triple authority: (a) the father in the 
family, (b) the employer in the workshop, (c) the church in 
the State. It does not aim to abolish present institutions. 

2. Criticism. 

The school attacks human libert}', and holds that man 
through this liberty has seriously deranged the social system. 
It seeks its ideal in the past rather than in the future. 

2. The Historical or Realistic School. 

1. This school rejects the deductive method, and 
claims that economic truth is secured by a patient observa- 
tion of facts. It is to history that the eyes of the realist 
are turned. The doctrine of I'lisse: /hire is rejected. 

2. Criticism. 

The method of this school tends to develop a national 
science. Its aim is practical, and hence new life has been 
given to empty theories by a study of history, the compari- 
son of laws and statistics. The true character of the science, 
however, in spite of all endeavors to the contrary, must 
remain in the nature of an abstraction. 
II. As enumerated by Prof. Laughlin. (Historical development.) 
(1) Mercantile School. 

1. Principles. 

(a) Monej'. the only form of wealth. 

(b) Secure balance of trade. 

(c) Prohibit export of specie. 



12 PRWCIPLliS OF feCONOMldF*. 

(d) Navigation Laws. (Colonial polic3^ ) 

(e) High import duties. 

(f) Stimulate home industry. 

(g) Self-aggrandizement. 

2. Time. About 1600-1750. 

3. Representatives. 

Thos. Mun, John Locke, Colbert. 

4. Faults. 

(a) Too closely connected with politics. 

(b) Fallacy of the abundance of money and balance 
of trade. 

(c) Monopolies created. 

(d) Tariff restrictions between provinces. 

(e) Heavy taxation. 

(f) Arbitrary regulations. 

(g) Subordinated science to the art. 

(2) Physiocratic or Agricultural School. 

1 . Principles. 

(a) The soil the sole source of a nation's wealth. 

(b) The soil should bear all national burdens. 

(c) Remove all restrictions from agriculture. 

(d) Wealth not increased by money per se. 
{ e) Free trade. ( Laissez f aire. ) 

2. Time. 

About 1750-1790. 

3. Representatives. 

Francis Quesnay, Mirabeau, Turgot. 

4. Faults. 

(a) Commerce and manufactures neglected. 

(b) Labor element ignored. 

(c) Basis of taxation. 

(3) English or Industrial School. 
1. Principles. 

(a) Source of a nation's wealth in all three forms, — 
agriculture, manufacture, and commerce. 

(b) All labor unproductive that does not tend to pro- 
duction or the exchange of commodities. 

(c) No state control. 

(d) Free competition. No governmental interference. 

(e) Inequalities in profits equalized by competition. 



PRINCLPLES OK ErOMiM ics. l'' 

(f) Labor recognized as a factor in the source of 
wealth. 

(g) Division of labor explained, 
(h) Money properly defined. 

2. Time. 
About 1775. 

I'eriods ■ ^'instructive (ending with Hicardo). 
( Critical. 

3. Representatives. 

Adam Smith, Say, Bastiat, Malthus, Ricardo, Cairnes, 
etc., etc. 

4. Criticisms on Smith's "Wealth of Nations." 

1. Failure to fulfill the promise of the title. 

2. Influence of Physiocrats strongly felt. 

3. Smith writes as though the world was one big 
government, and man a citizen of the world. 

•4. No inequalities of civilization or industrial status 
to affect competition of producer with producer is 
taken into account. 

5. More ideal than practical. 

Readings. 

•• I'rinciples of Political Economy." .F. S. Mill. Edited by .1. Laurence Lauirli- 
lin. pp. 1-42. 

'• Principles of Political Economy." Clias. Gide. pp. I-.IO. 

•• Principles of Economics." Alfred .Marshall. Vol. 1, Book 1. 

" History of Political Economy." J. K. Ingram. 

•'Outlines of Economic Theory." U. ,]. Davenport, pp. 1-lH. 

" Elements of Political Economy. ' I{. K.Thompson, pp, 11 ill. 

A LESSON IN BIOGRAPHY. 

Method: Let each student be assigneil one or more writers for 
special investigation. (2) Tabulate the facts from the reports 
made. (3) The students may make inductions as follows: (a) 
From what professions or callings has Political Economy claimed 
the most writers? (b) What were the characteristics of the Age 
producing the best writers? (C) Does the Science and the Art go 
hand in hand? (The teacher ma}' suggest other (luestions. ) 

Biographical Outline. 

1. Name of writer. 

2. Time. (Birth Death. ] 

3. Nationality, 



14 rRINCIPLES OF ECONOMICS. 

4. Business or profession. 

5; Cliaracter of the Age. 

(a) Political, (b) Social, (c) Religious. 

(j. School to which the writer belonged. 

7. Principles he advanced. 

8. His most important writings. 

9. His influence on other writers. 

10. His ranl^. 

Writers suggested for studj^: 

Francis Quesnay, Colbert, Turgot, T. R. Malthus, David Ricardo, 
Adam Smith, W. Stanley JeA^ons, J. S. Mill, J. E. Cairnes, Alfred 
Marshall, H. C. Carey, F. A. Walker, Henry George, Karl Marx, 
P. J. Proudhon, Walter Bagehot, Roscher, Jeremy Bentham, Cliflfe 
Leslie, Bastiat, J. B. Say. Senior. 

Readings. 

" A History of Political Economy." .J. K. lugram. 

•' Guide to the Study of Political Economy." Cossa. 

" Mill's Principles of Political Economy." Edition by J. L. Laughlin. pp. 1-43. 

" Encyclopedia Brittanica. Vol. 19. (1S85) on the article, " Political Economy." 

" Appleton's Encyclopedia of American Biography for American Writers." 

Illustrative Quotations. 

"Science is international; it suffers when the natural relation 
between different countries is interrupted, and gains when the 
connection is resumed. " — J. B. Clark, Intro, to Gide. 
" It is clear that the three questions (How can wealth be pro- 
duced? What use should be made of it? In what manner should 
it be divided?) which constitute the pith of political economy 
are essentially practical ones, and it seems to follow that the 
science whose object it is to supply an answer to these questions, 
should itself be of a practical nature; in other words, be an art 
rather than science.'''' — Gide. 

" Aristotle and Xenophon had some comprehension of the theory 
of money, and Plato had defined its functions with some accu- 
racy. The economic laws of the Romans were all summed up 
in the idea of enriching the metropolis at the expense of the 
dependencies. During the middle ages no systematic study was 
undertaken, and the nature of economic laws was not eyeij 8u§» 
pected." — 'J. L. Laughlin.^ Intro, to MWr 



rHINmi'LKS (»!■' KCONOMK's. 1 ') 

"The desires, passions, and propensities wliieb inHuence man 
kind in the pursuit of wealth are almost infinite. Yet among 
these are some principles of so marked and i)aramount a char- 
acter as both to admit of being ascertained, and when ascer- 
tained, to afford the data for determining the most important 
laws of the production and distribution of wealth. To possess 
himself of these is the first business of the political economist. 
He has then to take account of some leading physiological facts 
connected with human nature; and lastly, to ascertain the prin- 
cipal physical characteristics of those natural agents of produc- 
tion on which human industr}- is exercised." /. /y. Oitirms. 

" Even moral and religious considerations are to be taken into 
account by the economist precisely in so far as t|jey are found, 
in fact, to affect the conduct of men in the pnrsuit of wealth.'' 

— F. A. Walhrr. 

"Political Economy is concerned with man solely as a being 
who desires to possess wealth, and who is capable of judging 
the comparative efficacy of means to that end. It makes entire 
abstraction of every other human passion or motive, except those 
which rnay be regarded as perpetually antagonizing principles 
|to the desire of wealth, namely, aversion to labor, and desire of 
the present enjoyment of costly indulgences." — ./. S. Mill. 
'> While men are beings possessed of a will, they ordinarily act 
from motives. This is especially true of their conduct in regard 
to their material welfare; in this connection the same motives 
act with great unifornjity upon almost all men. The same wants 
.exist for all; the same welfare is desired by all: so that in this 
.department of science of man there is so little caprice that there 
is nearly as much power to forsee and foretell what men will 
do. as in some of the sciences to foretell the actions of things. 
Nearly, but not quite so much: for while men are agreed as to 
the end here, there is room for dilt'erence of opinion as to the 
means, and conseciuently for variety of action — for wise and 
unwise ways of procedure. " — R. E. Tlininjisu}!. 
"No doubt, in framing a scientific nomenclature, it is often 
necessary to depart from the ordinary uses of words. Political 
Economy draws its technical terms from popular language, and 
the mere circumstance that it is obliged to assign a precise mean- 
ing to these terms, £md tQ adUeve strictly to this meaning when 



16 TRINCIPLES OF EOONOMICH. 

once assigned — this circumstance compels a deviation from the 
more or less vague and fluctuating sense which attaches to all 
words in extensive popular use. " — J. E. Cairnes. 
" The value of the results of economic reasoning depends on the 
correctness of its assumptions with regard to the nature of man. 
If man is not the being he is assumed to be, there is no certainty 
that the conclusions will be even approximately correct. 

;[i ^ iK ^ ^* ^ ^ 

' ' The actual course of a cannon-ball may be determined by a 
mathematical computation, followed by the proper allowance 
for atmospheric resistance; but the social activities of man 
can not be determined by assuming that man is a being of a 
certain kind, elaborating the conclusions with nicety, and then 
endeavoring to introduce the proper allowance for the fact that 

man is, after all, a being of quite a different kind. " /. B. Clark. 

" The student becomes aware that every one of the great sys- 
tems (economic) possessed some truth, and no one has been 
elaborated which contains the whole truth. He becomes aware 
of a still more important fact, and that is, that owing to the 
continual changes in the nature of the elements with which he 
has to deal, no universal system, no system which shall be valid 
in all times and places, can at present, if indeed it ever can, be 
formulated. We can formulate for one time and countr}^, for 
our type of society and industry, for our race and nation; but 
such a formulation, even though perfectly correct, would prob- 
ably not hold for any other time or country or t5^pe or race, 
though it would, of course, hold true of them to just the extent 
to which they are similar to us and ours." — Frof. E. J. James, 
Introduction to Ingrariis " History of Political Economy.^' 
Questions. 

1. Why should Carlyle call political economy "a dismal 
science " ? 

2. Comte is called a positivist. Spencer, Mill, and Bentham 
are styled utilitarian. What is the meaning of each? 

3. Spencer in England and Giddings in America have developed 
the "organic theory" of society. Explain. What criticism, if 
any? 

4. ' ' Numerous schools in political economy is an incontestable 
sign of inferiority of the same." Why? 



PKIXCIPLES OV ECONOMICS. 17 

5. -'The uotion of value is really the basis of :ill political 
economy." Explain. 

6. On what questions does the legislator join hands with the 
economist? The moralist and the economist? 

7. What is meant by the inductive method of teaching Latin? 
Illustrate. 

8. France in 1544, and England in 15r)2, forbade the export 
of specie. What economic principle of the times were they at- 
tempting to carry out? 

9. What were the first two subjects to engage the attention of 
economists? 

10. Marshall holds that anything that can be quantitatively 
measured in terms of money is proper subject matter for political 
economy. Explain. 

11. Who is called the " Father of Political Economy'? The 
"Father of Free Trade" ? 

12. What economic school held tliat the laborer did not produce 
wealth? 

13. What were the causes that led to the systematic study of 
the laws of political economy in the 16th century? 

14. Discuss the philosophy of egoism. (I>) Altruism. (r) 
Hedonism. 

lij. Hobbes held that selfishness was the motive of all human 

action. Do you agree with him? 

16. Distinguish carefully between the terms, sciince and <(r(. 

17. Mill constructed for the theory of economics an " economic 
man." Define and criticise. 

18. State some of the modern tendencies of economic thought. 



WEALTH AND VALUE. 



What shall be included in the term Wealth P 

1. Material things? 

2. Immaterial things? 

3. Natural agents? 

4. Articles of value, or those things capable of a money meas- 
ure and nothing else? 

5. Must those articles be limited in supply? 

6. Is value in use a necessary element? 

Popular and Scientific meanings distinguished. 

1. Would anyone be rich in a communistic state of society? 

2. Does wealth in an economic sense signify abundance? 

Motives which incite flen to seek Wealth. 

1. To satisfy the desire for well-being. 

(a) Food. (^b) Housing. (c)CIothing. (d) Ornaments; 
or (a) Necessaries, (b) Comforts, (c) Luxuries. 

2. To satisfy the desire for social inequality. 
(!) These motives examined. 

(2) A study of the development of new economic wants from 
primitive society to the present time. 

(a) Nomadic. (6) Herdsmen. ( c) Husbandmen, (d) 
Manufacturers, (e) Traders (Commerce). 

The Idea of Value. 

1. Value in use and value in exchange distinguished. 

2. The cause of value in exchange. 
Theories of different economists. 

(1) J. B. Say and Jevons make utiliiij the sole cause of 
value. 

(2) J. S. Mill names two conditions, (a) Utility. i/>) 
JJlJficiilti/ of attaiiimevt. 

(3) Cairnes adds to Mill's conditions a third element, 
tran s/era bleness. 

18 



PRINCIPLES OF ECONOMICS. 19 

(4) Walker makes value depend wholly on the relation 
between demand and suppl)'. 

(5) Gide makes utiliti/ the cause of value, and names 
limitation i)i (juantiti/ or scarcity a subordinate ele- 
ment. 

(6) The mathematical school gives the preference to 
scjircifi/. 

(7) The English Classical school emphasizes difficult 1/ nf 
iitt<iiin)u'nt. 

(8) Eoscher finds that exchange value is '-based on a 
combination of value in use with cost value.'" 

(1>) Cherbuliez names two conditions. 

(a) The ability to give satisfaction and (/>) Inability 
of attainment without effort. 

(10) Carey makes the amount of labor to produce an 
object similar to the one produced the cause of 
value: /. /. , the labor of reproduction. 

(11) Bastiat defines the value as the relation V)etweeu two 
services exchanged, and makes value depend on the 
labor .sparai the would be acquirer. 

(12) Karl Marx rejects the idea of the individual laborer, 
and deals with nfjcial Jai)or, or the average labor 
necessary for the production of the commodity in 
general. 

(lo) Ricardo. Bastiat and Marx make utility the con- 
dition of value, but name hihor as its cause or 
measure. 

Examination of the "labor theory " of Value. 

1. If the value of a commodity had for its cause or sul)stance 

the labor expended in its production, would not this value 
necessarily be immutable? 

2. If labor was the cause of value, would not equal values 

always have to correspona to equal labors and unecjual to 
unequal? 

3. If labor were the cause of value, would a thing on which no 

labor was expended have any value? 

4. If labor is the cause of value, what is the cause of the value 

of the commodity of labor itself? 



20 PRINCIPLES OF ECONOMICS. 

Relation of Value to Demand and Supply. 

1. The intensit}^ of demand increasing, the supply remaining (a) 
constant (b) increasing. 

2. The intensity of demand diminishing, supply remaining (a) 
constant (b) increasing. 

Query: 1. How will each of these conditions affect the mar- 
ket value of a commodity in question? 
2. Is the ratio between Demand and Supply a fixed ratio? 
Relation of Market Value to Normal Value. 

1. D. >S, thenM. V. >N. V. 

2. D. <S. thenM. V. <N. V. 

3. D.=S. thenM. V. =N. V. 

The Commodities of the World Classified. 

I. Those whose supply is absolutely limited; e. g., ancient pic- 
tures, sculpture, Cremona violins, rare wines, etc. 

II. Those whose supply may be increased indefinitely so long as 

labor and capital can be secured: e. g., books. 
III. Those whose supply is increased at a gradually increasing 
cost, or those affected by the Law of Diminishing Returns ; 
e. g., corn, gold. 

The Laws Governing the Value of each class. 

I. The Market Value of Class I is determined by the intensity of 
the demand and the supply offered. It is a "Monopoly 
Value," and may be viewed as fictitious. 

II. The Normal Value of Class II is determined (in the long run) 
by the Cost of Production; the Market Value by the law of 
demand and supply. 

III. The Normal Value of Class III is determined by the Cost of 
Production of that portion of the whole amount needed, which 
is produced at the greatest disadvantage ; the Market Value is 
regulated by demand and supply. 

{Free competition in each of the above cases is contemplated.) 
Note: (1) Prof. Gride holds that the market value of Class II 
is regulated by the minimum cost of the commodity; of Class 
III, by the maximum cost of production 
Query: Does this view agree with MiU's, su^raf 



PRINCIPLKS OF EOONOMICS. 



21 



Ci) Prof. Clark adds a fourth class; those whose cost of pro- 
duction diminiskes with increasing production. 
Query: Do you think it is essential to name a fourth class? 
Can such a class be related to Class 11? What would deter- 
mine the values of such a class? 



Classification of "Goods." Mars/utll 



Material-external 



r Transferable. 

( Non- transferable. 



Goods are -l 



External 



Transferable. 



Non-transferable. 



Personal -{ 



Internal -/ Non-transferable. 



Classification of «' Goods." Davenport. 
\ Internal. 



Goods •{ 



Valueless. 



External ■>, 



Services. 



Valuable 



Individual. 



I Wealth -; National. 

I 

[ Social. 

Note: In the above outlines point out what you consider wealth. 

Definitions of Wealth and Value. 

Wealth is a short name for all the numberless things we all like 
to have and to own. 



22 



PRINCIPLES OF ECONOMICS. 



Wealth cousists of all the useful and agreeable material objects 
we own, or have the right to use and enjoy without asking the con- 
sent of any other person. — Macvnne. 

Wealth is that which can be exchanged, is limited in supply, and 
is useful. — Patton. 

Wealth is the collective name for all useful things that can be 
owned and exchanged. — Waijland. 

Wealth includes all material goods that have value. — Davenport. 

Wealth is all useful and agreeable things which possess exchange- 
able value. — J. S. Mill. 

Wealth consists of natural products that have been secured, 
moved, combined, separated, or in any other way modified by our 
exertions so as to fit them for the gratification of our desires. — 
Henry George. 

Wealth is anything transferable, limited in supply and useful. — 
Jevons. 

Wealth is all articles of value and nothing else. — F. A. Waller. 

Wealth is all material objects possessing utility. — Lavasseur. 

Wealth consists in power to command material service, includ- 
ng such intangible things as mental qualities. — Carei/. 

Wealth then consists in the relative-weal-constituting elements in 
man's material environment. It is objective to the user, material, 
useful, and appropriable. — ./. B. Clark. 

Everything that is of a nature to answer to any desire felt by 
man and to obtain for him certain advantages, everything that in 
his eyes is worth the trouble of being paid for, either at the price 
of a personal effort or by the sacrifice of a sum of money, neces- 
sarily falls within the sphere of political economy and constitutes 
"wealth."— G^iWr. 

Wealth includes all those things external to a man which [1] 
belong to him, and [2] which are directly capable of money meas- 
ure — a measure that represents, on the one side, the efforts and sac- 
rifices by which they have been called into existence, and, on the 
other, the wants which they satisfy. — Marshall. 

Material wealth is some transferable thing, for the enjoyment 
of which we are willing to undergo a sacrifice. — J. L. Lauglilin. 



PRINCIPLES OF ECONOMirS. 23 

Value is the ratio in which commodities in open market are ex- 
changed against each other. — ,/. E. (^(iN-ms. 

Value is the power which an article confers upon its possessor, 
irrespective of legal authority or personal sentiments, of command- 
ing, in exchange for itself, the labor or the products of the labor of 
others.—/; A. W<ilk>r. 

\'ahie is the measure of the resistance to be overcome in obtain- 
ing those commodities or things recjuired for our purpose — of the 
power of nature over man. — CVory. 

Value is proportion in exchange. — Jrnnis. 

A'alue is quantitative measure of utility. — Clork. 

Value is always and everywhere the relation of mutual purchase 
established between two services by their exchange. —.4. Jj. Perry. 

Value is purely relative, consisting as it does in a preference 
given to one thing over another. — CIkix. Gidr. 

The value of any particular thing is the measure of its power of 
commanding the sacrifice of other things. — //. ./. Dnrcnport. 

The valuation of an object is nothing more or less than the 
affirmation that it is in a certain degree of comi)arative estimation 
with some other specified object, and any other object possessed of 
value may serve as the point of comparison. — ./. B. tSa//. 

Further Definitions. 

Price is the value of a thing in relation to money — the quantity 
of money for which it will exchange. — Mi/L 

Utilitij is the capacity which anything or any service has to 
gratify human desire. 

Final UtUitii is the point in buying at which the buyer ceases to 
buy, preferring to keep his money rather than take any more of the 
article at that price. 

JVonwd Price marks the cost of production at the greatest dis- 
advantage. 

Market Price is the price that marks the final utility. 

Demand is the desire for commodities or services seeking its end 
by an offer of general purchasing power; and supply is the desire 
for general purchasing power, seeking its end by an oflfer of specific 
commodities or services. — Cairve.s. 



24 PHlNCIPhES dp EOOiNO.MtCS. 

The actual market price is the price which ecjiuilizes supply and 
demand in a given market. — /. S. Mill. 

The normal price of a commodity is that price which suffices, 
and no more than suffices to yield to the producers what is consid- 
ered to be the average and usual remuneration on such sacrifices as 
they undergo. — Cairncs. 

Economists understand by the term market., not any particular 
mai'ket place in which things are bought and sold, but the whole of 
any region in which buyers and sellers are in such free intercourse 
with one another that the prices of the same goods tend to equality 
easily and quickly. — Cournot. 
Illustrative Quotations. 

"The numberless theories which have been propounded for 
the explanation of the phenomena of value may be divided into 
two distinct groups or tendencies. The one is bound up with 
the idea of utility, and rests value on man's irants/ the other is 
bound up with the idea of labor, and rests value on man's 
efforts. The first is, in our opinion, the expression of what is; 
in fact, the value of things is proportional to our wants or desires. 
The second is the expression of vhat should he; in point of equity 
it is to be wished that value might be proportional to our efforts 
of labor." — Gule. 

"Demand and supply govern the value of all things that can 
not be indefinitely increased; except that even for them, when 
produced by industry, there is a minimum value, determined by 
the cost of production. But in all things which admit of indefi- 
nite multiplication, demand and supply only determine the per- 
turbations of value during a period which can not exceed the 
length of time necessary for altering the suppl3\ While thus 
ruling the oscillations of value, they themselves obey a superior 
force which makes value gravitate toward Cost of Production, 
and which would settle and keep it there, if fresh disturbing 
influences were not continually arising to make it again deviate." 
—J. S. Mill 

" A measurement of utility made by an individual gives value 
in use, not at all identical with what passes under that name in 
current discussion, which is utility itself, but the quantitative 
measure of that utility to an individual user. We have now to 
see, that, in a sense, measurements of utility are never made by 



I'RlNCJPl.KS (»!■" E('(lN(t.MI('S. 25 

:in3' other than a single independent being. Society, as an 
organic whole, is to be regarded as one great isolated being; and 
this being may and does measure utilities like a solitary tenant 
of an island. That is a part of our definition, — measure of 
service rendered to society as an organic whole. Though the 
thing were priceless to its owner, it might be cheap to society.'" 
— ,/. B. rinrh. 

Questions. 

1. Do you favor having all the wealth in the world distributed 
equally ? 

2. Are inequalities in men a necessar}' evil ? Do you iavor a 
state of social equality ? 

3. Compare the wants of a savage with your own wants. 

4. Compare the wants of the city inhabitant with those of the 
rural inhabitant. 

5. From the time of Diogenes there have been moralists who 
have regarded the progressive and indefinite multiplication of wants 
as a great evil. How would 3'ou answer such a person ? 

6. Every plant is a weed until some property useful to man is 
discovered. What has this to do with wealth ? 

7. We do not love money any more than we do baggage-checks 
or soup-tickets. Why, then, do we seek money ? How about 
the miser ? 

8. Are precious metals on the planet Mars, wealth ? In the 
ocean? Give reasons. 

9. One person spends $1,000 in a home, and another $1,000 in 
an education. Do you deem both to fall within the category of 
wealth? 

10. Why has a tailor made suit more value than a ready made 
suit when both serve the same purpose? 

11. Why did the mere rumor of Edison's invention of lighting 
[1878] cause a serious fall in the price of gas stocks? 

12. Is value more subjective than objective in character? 

13. Does a national loan, per se, increase the wealth of the 
country? 

14. Which of the following do you classify in the catalogue of 
wealth: Honesty? Land? Forests? Ice? Good-will of a business? 
Professional skill? An article which has no use? Bank stock? A 
pleasure boat? Admiral Dewey's autograph?' The ability to sing? 



26 PRINCIPLES OF ECONOMICS. 

Music? Food? Money? Electricity?, A lecture to which you pay 
admission? A lecture to which you do not pay admission? A 
phonograph? Music b}' a phonograph? Windows of a dwelling 
house in a populous city? 

15. Why has the diamond more value than the ameth3^st? 

16. Why are strawberries generally the cheapest in the Saturday 
afternoon market? 

17. Do men dive to the bottom of the sea to get pearls because 
they are valuable, or are pearls valuable because men must dive to 
the bottom of the sea to get them? 

18. When you speak of demand, do you always mean an effectual 
demand? Explain. 

li). Why does the Natural [or Normal] Price of commodities 
vaxy from the Market Price? 

20. If you had $10,000, what would you do with it? 

21. In some countries a man s wealth is measured by the number 
of his wives. Are the women icealtk in such a society? 

22. A dog has been trained to guard sheep. Is this an increase 
in wealth? 

23. Would any system of political enconomy be possible for a 
man alone on a desert island? Did the terms wealth or value have 
any meaning to Crusoe on the island of Juan Fernandez? 

24. Walker says that there are some things that are better than 
wealth, but are not wealth. Explain. 

25. Why will a large increase in the annual output of the pre- 
cious metals have a less perceptible effect on their value than a 
corresponding increase in the production of wheat on its value? 

26. There is no such thing as a general rise of values, but there 
is such a thing as a general rise of prices. Explain. 

27. "Value varies in direct ratio of the quantities demanded, 
and in inverse ratio of the quantities offered." Is the proposition 
absolutely false? 

28. "Moreover, it is a petifio prmcijyi'i- to say that the cost of 
production is the cause of the value of things. On the contrarj^ it 
would be more correct to say that it is the value of the product which 
determines the cost of production.^' Comment on the statement. 

29. ' ' The equalization of income is certainly a good thing to 
aim at, but economy in production is better." What does this 
argue? 



PKlNTll'LES (IK ECONOMICS. 27 

30. Does the repiuduction of Millels •• Angelas" lessen the 
intensity of demand for the painting itself ? 

31. The same author makes these statements in the same 
chapter: "All forms of labor create wealth,' and •' i^abor is not 
always the cause of wealth." Are these statements contradictory? 

Readings. 

"Leading Principles of Political Economy." J. E. Cairnes, Chap. 1. Part I. 
"Principle of Political Economy." J. S. Mill, Edited by LauK'ilin. Book III 

Chap. I. 
"Treatise on Political Economy." J. B. ."^ay. Book II, Chap. I. 
" Political Economy." F. A. Walker. Part III. Chap. I. 
"Political Econom.y." Gidc. pp. :-{l-!)2. 
" Principles of Economics." INlarshall. Book II, Chap. II. 
" The Philosophy <f Wealth." .1. B. Clark, pp. 1-31: TO-KW. 
"Outlines of Economic Theory." Davenport, pp. U-4it. 
" Introduction to the Study of Economics. C. J. Bullock, pp. 180-208. 
" Institutes .of Economics." E.B.Andrews, pp. .h:5-117. 
" Economics " A. T. Hadle.y. pp. 63-96. 
" Outlines of Economics." Ely. pp. Ill- LSD. 



PRODUCTION. 



Factors of Production. 

(A). NATURE (LAND). (B). LABOR. (C). CAPITAL. 
A. Nature. 

I. Environment. 

1. Climatic conditions. 

2. Geographical situation. 

[«]. Contour, lb']. Relief. 

3. Gleological formation. 
II. The Ground. 

III. The Raw Material. 

1. Elements [68]. 

2. Compounds and Combinations. 

IV. Motive Forces. 

1. Muscular force of animals. 

2. Windj water, electricity, etc. 

3. Expansive forces; e. g. . Steam. Application of 1, 2, 
3, to Mechanical Powers. 

<i. Lever, h. Pulley, c Wedge, d. Screw, e. 
Inclined Plane. 

Questions. 

1. Discuss the relative importance of land, labor, and capital as 
factors of production. 

2. Why are the frigid and torrid zones non-productive zones of 
industrial activity? 

3. Analyze the elements of England's greatness as a maritime 
and commercial power. 

4. Is the city of Chicago an accident? 

5. Account for the great manufactories of Pennsylvania. [/>.] 
The New England States. 

6. How much land-area is there? Is it capable of increase? 
How does this affect production? 

28 



I'RlNCll'LKS OK ECONOMICS. 29 

7. What iiiduence had geography on Greece? On Rome? 
What differences? 

8. J. S. Mill names two requisites of production: labor and 
appropriate natural objects. What criticism, if any? 

9. How many people to the square mile in the U. S. ? England? 
Belgium? 

10. ^^■ould there be a greater production of wealth from 40-acre 
farms than from J GO-acre or larger? 

1 1 . What relation do good roatls bear to production? 

12. Do speculators or gamblers contribute to the increase of 
wealth? 

13. Does the economist take into consideration gratuitous serv- 
ices and acts of philanthropy? Give examples. 

14. The phenomenon of life is characterized by <<. Genesis or 
birth; />. Development or Growth: c. Reproduction: d. Decay and 
Death. How far can these be harmonized with the view that society 
is an organism? 

Illustrative Quotations. 

'•There are thus two forces in the problem of history — man 
and nature. The resultant is the direction of human develop- 
ment. This is not a difficult conception. It is one aspect of that 
which the biologists call the law of adaptation or of correspondence 
to environment. Life for each one of us is a question of what there 
is in us plus what is outside — of our powers and energies in face 
of our surroundings and opportunities. Give Crusoe his island. 
What will he do with it? This is in part a question of Crusoe, and 
in part a question of the island. Likewise for races the question is 
one, on one side, of character and propensity: on the other, of sur- 
roundings and opportunity. " — Ddceitport, Ec. Till 11. ^ p. S. 

B. Labor. 

Definition. 

1. Labor is any voluntary human effort, involving sacri- 

fice. 

2. Labor is any exertion of mind or body undergone 

partly or wholly with a vie\v to some good other 
than the pleasure derived directly from the work- — 
Marsh,(/I. 



30 



PRINCIPLES OP ECOiNOMICS. 



Classification of: 

1. Muscular and Nervous or Mental. 

2. Direct and Indirect. 

3. Productive and Unproductive. 

4. Skilled and Unskilled. 

Classes (2) and (3) illustrated. 

'1. Direct — e. g. , the baker of bread. 



Labor 
(Bread-making) ^ 



a. Production of materials — e. g. , 
the miller, coal-miner, farmer. 

h. Production of implements, e. g. , 
the oven- maker. 
2. Indirect. -{ c. Protection — e. g. , legislator, po- 
lice. 

d. Transportation — e. g., teamsters, 
common carriers. 

e. Training — e. g. , teachers. 

f. Invention — e. g., improvers of 
flues and ovens. 



1. Idlers or unproductive [Unproductive 
laborers ^ 

[ Consumers. 



Labor 
(The world contains) ^ 



f (a) For productive 
I consumption. 
2. Productive labor- ^ 

ers. I (b) For unproductive 

[ consumption. 



The Efficiency of Labor. 

Conditions of — 

1. Race. 

2. Inherited strength. 

(a) Muscular (b) Nervous, 



PRINCIPLES OF FX'ONO.MICS. )]l 

3. Food. 

(a) Character, (b) Amount. 
■i. Eavii'oument. 

(a) Climate, (b) Natural resources. 

(C) Legislation and I'rotection. 

(d) Social life, (e) Sanitation. 

( f ) Means of increasing intelligence. 

(g) Means of increasing the technical skill of the 

laborer. 
5. Cheerfulness and Hopefulness. 

Cfianictcr of Ins rcnanl. 

The Mobility of Labor. 

(a) In the same country, (b) Between ditterent countries. 

Competition Among Laborers. 

1. Industrial society is made up ol' non-competing groups, but 
within each group, competition plays. 
Query: How does centralization of capital aflfect com- 
petition within these non-competing groups ? 

Illustrative Quotation. 

" Man can not create material things. In the mental and moral 
world indeed he may produce new ideas; but when he is said to 
produce material things, he really only i)rodnces utilities: or in 
other words, his efforts and sacrifices result in changing the form 
or arrangement of matter to adapt it better for the satisfaction 
of wants. All that he can do in the physical world is either to 
reajust matter so as to make it more useful, as when he makes 
a log of wood into a table; or to put it in the way of being more 
useful by nature, as when he puts seed where the forces of 
nature will make it burst out into life." — MnrnlmJI. Prin. of 
Econ.. p. 114. 

" The acquisition of the rudiments of education, and in many 
cases, the most profound knowledge of chemistry, physics and 
recondite studies, are essential to production; and teaciiers are 
indirect laborers in producing almost every article in the mar- 
ket. In this country especially are inventors a class of indirect 
laborers essential to all ultimate production as it goes on." — 
LtiughUii. Mill's Prin., p. 57. 



PRINCIPLES OF ECONOMICS. 

' ' By unproductive labor, will be understood labor which does 
not terminate in the creation of material wealth. And all labor, 
according to our present definition, must be classified as unpro- 
ductive, which terminates in a permanent benefit, however im- 
portant, provided that an increase of material products forms no 
part of that benefit. The labor of saving a friend's life is not 
productive, unless the friend is a productive laborer, and pro- 
duces more than he consumes." — J. S. Mill. Laughlin's Ed., 
p. 60. 

' ' Finally discussion has been keenest with regard to services 
rendered, such as those afforded by the liberal professions; for 
it may seem strange to call ' productive ' the labor of a surgeon 
who amputates a leg, or of the executioner who cuts off a head. 
However, this last step has also been taken, and now without 
halting at antiquated and pedantic distinctions, we have come 
to place under the heading of productive labor all labor that in 
any way whatever contributes to the satisfaction of the wants of 
man. The term ' productive ' should be taken in the widest pos- 
sible sense. In the social organism, thanks to the law of the 
division of labor, there is such a solidarity between the labors of 
men, and they are so closely related that it is impossible to sep- 
arate them." — Gidc, Prill, of Pol. Econ.., 2D. 115. 

•' Whoever makes, interprets, or enforces law, produces wealth. 
He imparts to the commodities of the society which employs 
him, the essential wealth-constituting attribute of appropriability. 
" The production of social modifications which result in giving 
to commodities the attribute of appropriability is the chief econ- 
omic function of legislative and judicial labor. Is is as truly a 
wealth creating function as the direct production of useful com- 
modities." — Chirk, Phil, if Wealth, p. 13. 

"If labor was a talisman which turned everything to gold, the 
slag of the blast-furnace should have value as well as iron. The 
difference between them is their utility, not in their origin. K 
chance chemical discovery might reveal uses for the slags in their 
present form, and they would become wealth ; but they would have 
been a product of labor before they became wealth as well as 
after." — ./. B. Clarh. 

■'Labor imparts want-satisfying powers, or utilities to natural 
agents. These utilities are of four kinds, and may be arranged 



PRINCIPLES OF ECONOMICS. 33 

in four corresponding classes; namely, elementary utility, form 
utility, place utility, and time utility," — Ihid. 

Questions. 

1. What is the difference between labor and play? 

2. Do you ever call the work of horses, labor ? 

3. When you buy a book, how many forms of labor does the 
price represent ? 

4. When you accidently destroy or lose some form of wealth, 
you are consoled by the fact that to reproduce it, labor will be 
given something to do. Wherein is the fallacy ? 

5. The destruction of wealth by strikers is a detriment to 
themselves. Explain. 

6. Can you ever say that the burning of a city is an economic 
good? 

7. Do you class the following laborers as productive or unpro- 
ductive: An actor? a soldier? a clergyman ? an artist ? an organ- 
ist? officers of government ? a confectioner ? a maker of an article 
for which there is no use ? 

8. Make a classification of laborers under our present industrial 
system. What is the basis of your classification ? Would you 
class the capitalist as a laborer? The rntrrpriniur/ 

9. Do you observe any distinction Itetween the cost of labor 
and the cost of production ? 

10. Does the carpenter compete with the watchmaker ? The 
brick-layer with the stone-mason ? The teacher who is a university 
graduate with the teacher who is not a graduate ? 

C. Capital. 

Definition. 

Capital is that part of a person's stock from which he 
expects to derive an income. — Adam Sniitli. 

Capital is that part of a person's wealth by which he wins 
his livelihood. — Marshall. 

Capital is saved wealth devoted to reproductive employ- 
ment. — J. iS. Mill. 

Capital is an article of wealth, the result of human exer- 
tion, employed in the production or distribution of 
wealth. — tSeni'ir, 

;i 



34 TRINCIPLKS OF ECONOMICS. 

Capital is a complex of means of obtaining a livelihood 
made by man; that is, a complex of goods which had 
their origin in a previous process of production and as 
destined not for immediate consumption for the sake of 
enjoyment, bnt the acquisition of more goods. — Bohm- 
Bawerli. 

The capital of a community is that part of its wealth 
(excluding land and natural agents, considered as unim- 
proved) which is devoted to the production of wealth. 
— F. A. ^Y<dher. 

Only that part of wealth is capital which the possessor 
intends to use for the production of other wealth, — 
Laughlin. 

Kinds of Capital Suggested by Marshall. 

1. Trade Capital. — Consisting of those external goods which a 
person uses in his trade, either (1) to be sold for money or (2) to 
produce things to be sold for money, 

2. Personal Capital. — Consisting of those energies, faculties, 
and habits which directly contribute to making people industrially 
efficient, and secondly all their business connections and associations. 

3. Social Capital. — Consisting of those things made by man, 
by which the society in question obtains its livelihood. 

{a'). Consumption Capital. — Consisting of those goods which 
satisfy wants directly; e. g. , food, houses, clothes, etc. 

(6.) Auxiliary Capital. — Consisting of all goods that aid 
labor in production ; e. g. , tools, docks, machines, etc. 

4. Circulating Capital. — That which fulfills the whole of its 
office in the production in which it is engaged, by a single use. 

5. Fixed Capital. — That which exists in a durable shape and 
the return to which is spread over a period of corresponding duration. 

6. Specialized Capital. — That which is designed for use in one 
trade and can not easily be diverted to another. 

Query: How many distinct forms of capital do you consider are 
named in the above classification? 

Walker's Forms of Capital. 

(1). Subsistence. (2). Tools. (3) Materials. 



PRINCIPLES OF ECONOMirs. 



35 



Qide's Division. 

1. Productive — that which really serves to produce new 
wealth. 

2. Lucrative — that which merel}' yields an income to its 
owner. 

Capital involves two fundamental concepts. 
1. Productiveness. 2. Prospectiveness. 

Increase of Capital Depends on 

1 . The amount which can be saved. 

2. The disposition to save. 

Law of increase of Capital illustrated (LaughJin). 

1. The amount of surplus wealth over 
necessaries. 

1. In unhealthy climates 
and occupations. 

2. "Where there is little 
s z. ±ue streno;iu , , 
I - ° law or order. 

3. Because of no proper 
estimate of future 
good in comparison 
with present sacri- 
fices. 

-t. Because of want of 
interest in others. 

Labor and Capital Belated to Cost of Production. 

(a). Duration of sacrifice. 



Increase of 
Capital depends 



2. The strength 
of the desire 
to save 
which is 
less 



1. Ivabor. <{ (b). Severity. 



Cost of I 
Production. ^ 



( Mental. 
( Physical. 



(c). Bisk. 



2. Capital. 



( (<i). Waiting or abstinence. 

((t). Rate of interest, (r). Risk. 
Query: How will nature (as .we have heretofore considered it) 
affect Cost of Production? 



36 " PRINCIPLES OF ECONOMICS. 

Questions. 

1. Distinguish carefully between wealth, capital, and money. 

2. What is the distinction between ac^wa^ capital and potential 
capital? Has the distinction any value in a classification of 
capital? 

3. Consider whether or not the following should be included in 
capital: The original and acquired powers of labor; credit; 
unsold stock in the hands of the merchant; bric-a-brac in a 
home; original properties of the soil; rare coins in your pos- 
session; investment in government securities; railway shares; 
stocks of wine; wheat; munitions of war; money in a bank; 
a suit of Sunday clothes ; a piano. 

4. Does the economic nature of capital depend wholly upon the 
intention of its owner? Is all capital necessarily wealth? 

5. Does a national loan add to the capital of a country? 

6. Discuss the effects of a large expenditure of mone}^ for mili- 
tary purposes upon the operations of labor and capital. 

7. Show that there is no assignable limit to the employment of 
capital in bettering the conditions of the members of a com- 
munity. 

8. Inquire how far, or in what cases, or in what sense, it may 
be said that a common dwelling-house, a hotel, a school- 
house, a police-station, a theater, and a fortification, consti- 
tute part of the capital of a country. 

9. Can wealth perform the functions of capital without being 
partially or wholly consumed? 

10. Is a demand for commodities always a demand for labor? Is 
it at any time? 

11. A college undergraduate, with the applause of shop-keepers, 
bought twenty waistcoats under the plea that he was doing 
good to trade. Examine the economical soundness of his 
act. 

12. Which is the better method of defraying war expenditure, by 
loans, or by increased taxation? Why? 

13. Classify the following under (1) fixed, or (2) circulating 
capital: diamonds in a jeweler's shop, a crop of corn, a loco- 
motive, a greenhouse, woods, nails, money, an ingot of gold, 
coal, a suit of clothes, a box of cigars, V. S, bonds. 



VklNClPLKS OK ECONOMICS. 3? 

14. Ai'e Bradley-Martin halls economically beneficial to indus- 
trial society? 

15. Which is the better (luality to possess: (1) ability to earn, 
or (2) disposition to save? 

16. Do the savings of a miser increase capital? 

17. What items of capital appear in the annual inventory of a 
shoe factory? 

18. Henry George said: " If the articles of actual wealth exist- 
ing at any time in a given community were presented In .sifn 
to a dozen intelligent men who had never read a line of 
political economy, it is doubtful if they would differ in 
respect to a single item as to whether it should be accounted 
capital or not." Comment. 

19. Marshall says: "Thus oats are capital if they are to be 
given to a cart-horse, but not if they are to be given to a 
race horse." Do economists universally accept this dis- 
tinction ? 

20. Is labor in any sense instinctive? Is the disposition to save? 

21. How does a herd or a flock represent saving? 

Illustrative Quotations. 

"At every step of its progress, capital follows one law. It 
arises solely out of saving. It stands always for self-denial and 
abstinence. "— i^. A. Walker, Pol. Econ., p. 66. 
"Some employment is indeed derived from the consumption of 
the necessaries of life which are included under capital; but they 
are counted as capital because of the work for the future which 
they enable people to do, and not on account of the present 
pleasure which they afford. Thus capital is said to be the result 
of saving, of a sacrifice of present enjoyments for the sake of 
the future; and it is chiefly for this reason that economists 
exclude from capital in its pure economic sense those three gifts 
of nature which have not been made by man, though they 
include the value of the improvements which man has added to 
the natural resources of the land." — Murs/mf/, Pi in. of Econ., 
p. 125. 

"It will be observed that I have assumed that the laborers 
are always subsisted from capital; and this is obviously the fact, 
though the capital need not necessarily be -furnished by a person 
called a capitalist. " — .7. S. Mill, I'rin. Ecou., p. 6H. 



PKliVClPLES Of EOONOMlOS, 

"From a logical point of view it is impossible to conceive hoW 
a purely negative act, a simple abstention, can produce anything. 
When wealth is said to have been created by saving, the only 
meaning is, that if this wealth had been consumed as soon as it 
was born, it would not be existing still. That is obvious. But 
according to such reasoning we should have to allow that an 
object is produced each time we refrain from using it; and non- 
prodi/ction would have to be reckoned as one of the causes of 
production — a curiosity in logic, to be sure. If a child asked 
whence chickens came, and was told that to produce chickens 
he must refrain from eating eggs, we should be justified in 
regarding the answer as excellent advice, but as an exceedingly 
absurd explanation. We are not a whit better satisfied by the 
train of reasoning which makes savinc/ the original cause of the 
formation of capital." — Gide, Pol. £Jcon., p. 139. 
' ' All accumulation involves a sacrifice of a present, for the 
sake of a future, good. "' This is the fundamental motive under- 
lying the effective desire of accumulation, and is far more im- 
portant than any other. It is, in short, the test of civilization. 
In order to induce the laboring-classes to improve their condi- 
tion and to save capital, it is absolutely necessary to excite in 
them (by education or religion) a belief in a future gain greater 
than the present sacrifice. It is, to be sure, the whole problem 
of creating character, and belongs to sociology and ethics rather 
than to political economy. — Ldiu/hlin's JVill, p. 132. 
"Popular speech is correct in giving the name of capital to 
acquired capacities, to the knowledge needed for certain profes- 
sions and to education in general. Obviouslj', we must beware 
of classing as capital those personal qualities and faculties 
which are only one of the terms of human activity; for that 
would confound labor with capital. But as soon as man's 
natural faculties have been modified and worked on so as to take 
the shape of acquired knowledge, they can then be termed pro- 
ductive capital; for in that case they are the product of nature 
and of labor, and clearly serve in the production of new wealth." 

— Gide, Pul. Evon., p. ISo. 

"The distinction between capital and non-capital does not lie 
in the kind of commodities, but in the mind of the capitalist — 
in his will to employ them for one purpose rather than another." 

— J. S. Mill Ft in'. Ec, p. 68. 



I'RINCIIM.ES OK IKIDNOMICS. ill) 

" If people regarded futLire pleasures as ecpially desiralole with 
pleasures of erjual amount at the present time, they would 
probably endeavor to distribute their pleasures evenly through- 
out their lives. But in fact human nature is so constituted that 
in estimating the 'present value' of a future pleasure most 
people generally make a second deduction from its future value, 
in the form of which we may call a 'discount,' that increases 
with the period for which the pleasure is deferred. One will 
reckon a distant pleasure at nearly the same value which it 
would have for him if it were present; while another who has 
less power of realizing the future, less patience and self-control, 
will care comparatively little for any pleasure that is not at 
hand." — Mnrshall. Priti. Econ.^p. ITS. 

Readings. 

Gide's Pol. Ei-on., pp. !«-14n. 

Walker's Pol. Econ.. Adv. t'ourse. pp. 44-74. 

Laughlio's Pol. Econ., pp. ]l-5:i. 

Calrnes' Pol. Econ.. pp. 205-210. 

J. S. Mill's Prin. Pol. Econ.. Lauyhlin. pp. '■>i-^'^^. 

Davenport's Ec. Tlieo., pp. 119-43; .50-67. 

PRODUCTION IN RELATION TO SOCIAL CONDITIONS. 
Examination of the Organic Theory of Society. 

1. How far is society differentiated that we may find organs 

and functions? 

2. Primitive society compared with lower forms of animal life; 

e. g. , the amoeba. 

3. Ma}' we view economic and industrial conditions as the prod- 

uct of social evolution? Illustrate this view by a study^ 
of the social development from patriarchal conditions to 
our present complex state. 

Phenomena of Social Production are {(rlxh) 

I. Association. 
II. Division of Tiabor. 

III. Exchange. 

IV. Credit. 

I. Association. 

1. For what purpose indispensable? 

2. Association of labor illustrated. 

3. Association of capital illustrated. 

4. How do communistic conditions affect association? 



40 PRINCIPLES OF ECONOMIC^. 

5. How do socialistic conditions (state interference) affect 

association? 

6. Association studied from the standpoint of organized industry 

on a large scale. 

A. Advantages of large production. 

1. Extends the limit of individual strength and capacity. 

2. Economy in labor in making Division of Labor possible. 

3. Economy of space or situation. 

4. Economy in natural agents. 

5. Economy in capital. 

6. Economy in product (resulting from the economies 
supra,) giving a cheaper and better product. 

B. Disadvantages of large production. 

1. Supplanting of wdepoident labor by hired employment. 

2. Disappearance of middle men. 

3. May lead to monopoly prices by destroying com- 
petition. 

4. Calls for more legislation. 

5. Lessens individual enterprise. 

6. May cause the State to become a. factor in production. 
A priori this can not be considered a disadvantage. 
It is a question of comparative services for the public 
good. 

Questions. 

1. Compare the development of economic conditions with the 
development of political conditions. Do they correspond, stage by 
stage? In what sense? 

2. Do you consider that the present system of production on a 
large scale is a natural growth? What will be the next stage in this 
industrial evolution? 

3. Could the State by owning and controlling the means or 
instruments of production give an increased wealth-product to be 
distributed! How? 

4. Is it practicable or desirable that large production should 
extend to Agriculture? What is the present tendency? 

5. As the United States becomes more densely populated, what 
effect will it have on property holdings in land? 

6. Does the number of laws increase or decrease the more com- 
plex society becomes? Why? 



PRINCIPLES OP ECONOMICS. 41 

II. Division of Labor. 

1. Development of as seen in 

a. Trades. I>. Workshops, c Professions. 

2. Necessary conditions of 

a. Production on a large scale. 

1. Large investments of capital in machinery, build- 
ings, etc. 

2. Large number of laborers of different grades under 
one general management. 

h. Production must be continuous. 

1. Character of the labor; e. g. , agriculture. 

2. An extensive market, 
c. Great executive ability. 

1. Superintendence of the mechanical processes. 

2. General management of purchases and sales, credits, 
collections, etc. 

3. Close study of markets, competition, etc. 

3. Division of labor in relation to production. 
a. Advantages. 

1. Products are multiplied and cheapened by 
a. Economies of time, h. labor, c. capital. 

2. Products are increased in varieVy. 

3. Certainty of steady employment of laborers. 

4. Proper balance between different branches of industry. 

5. Develops dexterity in the laborer. 

(i. Gives latitude to individual capacities and aptitudes 
and develops mastership. 

7. Diminishes the -'pain element"" of labor, making 
labor less arduous. 

8. Economy of time in, a. Apprenticeship. f>. "Setting 
to work " in changing labors. 

9. Develops an esprit de corps. 
10. Gives play to invention. 

h. Disadvantages. 

1. Makes the laborer's work mechanical. 

" It is a sad confession for a man that during his 
whole life he has constructed nothing more than 
the eighteenth part of a pin."' 

2. Makes the laborer incapable to do anything well 

except the fixed and special operation. 



42 I-RINCIPLES OF ECONOMICS. 

3. Danger of impairment of the health and vigor of 

the laborer. 

4. Involves the loss of some independence and self 

respect. 

5. Dwarfs the laborer's faculties. 

6. A financial failui-e of an establishment of large pro- 

duction involves the fate of great numbers of work- 
men. 
Questions. 

1. Describe any large manufacturing establishment you have 
ever visited, and point out the Divisioa of Labor found therein. 

2. Do you think that the establishment of a large factory in 
your town is productive of more good than evil ? Give i-eason. 

3. What is the character of Factory Acts that are generally 
found upon our Statutes ? 

4. Illustrate division of labor among, (/. doctors, h. lawyers, 
c. bookkeepers. Do avy disadvantages suggest themselves to you? 

5. Would a co-operative system of society affect division of 
labor to any extent? 

Illustrative Quotations. 

' ' This division of labor first dwelt on by political economists as a 
social phenomenon, and thereupon recognized by biologists as a 
phenomenon of living bodies which they called the ' physiologi- 
cal division of labor,' is that which in the society, as in the 
animal, makes it a living whole. Scarcely can I emphasize 
enough the truth that in respect of this fundamental trait, a 
social organism and an individual organism are entirely alike." 
— Herhert Spencer, Priii. Soc, Vol. I, p. Jf.Jf-0. 
' ' Now, are there nothing but advantages in this evolution to- 
wards large production? No one but the most sanguine of opti- 
mists could think so. Were this evolution brought about solely 
by the means of perfect association, by the progressive substi- 
tution of associated for isolated labor, we might perhaps be able 
to see in it nothing but advantages. Even then, however, if 
the result of the development of collective organization was to 
weaken and relax the stimulus of individual initiative and re- 
sponsibility, like springs which rust for want of use, we might 
justly expi'ess some fear, or at any rate some regret." — (ride, 
Pol. Econ., p. 158. 



PttlNCllM.ES OF ECONOMICS. 4H 

'' It is foand that the pi'oductive power of labor is increased by- 
carrying the separation further and further; by breaking down 
more and .more every process of industry into parts, so that 
each laborer shall confine himself to an even smaller number 
of simple operations. And thus in time, arise those remarkable 
cases of what is called the division of labor.'' — ,/. ,S. MIIK Frin. 
JBJcon., J). lOS. 

"The business of making a pin is divided into about eighteen 
distinct operations. One man draws out the wire, another 
straightens it, a third cuts it, a fourth points it, a fifth grinds it 
at the top for receiving the head; to make the head requires two 
or three distinct operations; to put it on is a peculiar business; 
to whiten the pins is another; it is even a trade by itself to put 
them into paper. ' — A(hnn Smif/i. 

Readings. 

Laughlin's Mill. Pria. Pol. Econ.. pp. 99-IU. 

Gide's Pol. Econ., pp. 145-16;'). 

Walker's Adv. Course, pp. 56-61. 

Bastiat. Ec. Harm., p. 211. 

Patton. Pol. Econ.. pp. 50-56 

Smith's Wealth of Nations. Bk. T, Chap. TV. 

THE QUESTION OF INSUFFICIENCY IN FUTURE PRODUCTION. 
The Growth of Numbers. 

Premises. 

1. Land is fixed in amount and is not capable of increase. 

2. The production from land has a limit; /. <.. it is affected 

by the Law of Diminishing Keturns. 

3. Other conditions being equal, population or growth in 

numbers has no assignable limit. 

Query. Will the time ever come when population will 
press upon food production? 
Counteracting forces are two in number: 

L Those causes retarding the growth of population. 

1. War, famine, pestilence. 

2. Deaths by 

a. Natural causes. I>. Suicide, c Accidents. 

3. Legislative restrictions. 

•1. Moral and prudential restraints. (Altruistic.) 



u 



PRINCIPLES OF ECONOMICS. 



5. Physiological causes. 

6. Public opinion and spirit of the age. 

7. Standard of comforts. 

8. Luxuries. 

9. Immorality. 

II. Those causes increasing the efflcienc}^ of production. 

1. Improved machinery. 

2. Increased intelligence. 

3. Irrigation. 

4. New fertilizers. 

5. Intensive cultivation. 

6. New economic wants enlarges the field of labor. 

7. Better roads and means of communication. 
Law of Population as enunciated by Malthus. 

1. Essay on the Principles of Population, by T. R. Malthus, first 

edition, 1798. 

2. His famous formula affirmed that "population tends to 

increase in a geometrical progression, whilst the means of 
subsistence can only increase in an arithmetical pro- 
gression. " 

Progression of Pojiulatio n ; 1, 2, 4, 8, 16, 32, 64, 128, etc. 
Progression of Production; 1, 2, 3, 4, 5, 6, 7, 8, etc. 

3. His reasoning consists of three parts: 

a. The Supply of Labor. 

He shows that every people of whose history we have 
a trustworthy record has been so prolific that the 
growth of numbers would have been rapid and con- 
tinuous, if it had not been checked by scarcity of the 
necessaries of life, by disease, by war, by infanticide, 
or by voluntary restraint. 

h. The Demand for Laboi'. 

He shows that up to the time he wrote, no country 
had been able to obtain an abundant supply of the 
necessaries of life, after its territory had become 
thickly populated. 

c. The Conclusion. 

He claims that what had been in the past was likely 
to be in the future, and that population would be 
checked by poverty or money, unless it were checked 
by voluntary restraint. 



PRINCIPLES OF ECONOMICS. 45 

Objections to the Malthusian doctrine. 

1. Increase in numbers increases productive power. — A. A. 

Evi'i-etl (18.>S). 

2. Human fertility varies inversely witli numbers. — M. T. 

iSiidler ilS.JO). 

3. Material improvement of the human race is a proof that man 

can produce more than he consumes. — A. Alison (18Jf.O). 

4. Increased demand upon the nervous system causes a diminu- 

tion of fertility. — Sj)rnc('r {lS').:i). 

5. Reason, as well as facts, are against Malthus. — R. E. Thomp. 

son {lS7-'>). 

6. Tendency is for subsistence to outstrip the increase of popu- 

lation. — JSf. W. Senior. 

7. J. S. Mill held the tendency pointed out by Malthus is the 

constant element in the problem, and all others are incon- 
stant and variable. 

8. Malthus is also opposed by Carey, Bowen, and Henry George 

in America. 

Illustrative Quotations. 

"It would seem, then, that what has been ambitiously 
called Malthus' theory of population, instead of being a great 
discovery, as some have represented it, or a poisonous novelty, 
as others have considered it, is no more than a formal enun- 
ciation of obvious, though sometimes neglected, facts. The 
pretentious language often applied to it by economists is objec- 
tionable, as being apt to make us forget that the whole subject 
with which it deals is as j'et very imperfectly understood — the 
causes which modify the force of the sexual instinct, and those 
which lead to variations in fecundity, still awaiting a complete 
investigation. 

"Malthus and his followers appear to have greatly exagger- 
ated both the magnitude and the urgency of the dangers to 
which they pointed. Because a force exists, capable, if un- 
checked, of producing certain results, it does not follow these 
results as imminent or even possible in the sphere of experi- 
ence." — /. K. liiyram. Hist. Pol. Econ., j>. 117. 
" The rate of increase of population in civilized countries may 
be reckoned as about 1 per cent (more exactly 9 out of lUUU), 
which corresponds to a period of doubling in 72 years, and ia 



46 PRINCIPLES OF ECONOMICS. 

thus far inferior to that predicted by Malthus. Thus the 3'early 
increase for G-ermany, England, and Russia is respectively 9, 10, 
and 13 per 1000; but it is less for some countries, especially for 
France, which is far in the rear. 

"Yet, even at this apparently moderate rate of 1 per cent, the 
increase in population would be literally awful, and would lead 
to almost inconceivable results. Granting the population of the 
world (now calculated at 1,500,000,000) were to increase 1 per 
cent per annum, it would reach 3,000,000,000 by the middle of 
the next century, and 48,000,000,000 about the year 2240." — 
Gide, Pol. Econ., p. 32^. 

"In the animal and vegetable world the growth of numbers is 
governed simply by the tendency of individuals to propagate 
their species on the one hand, and on the other hand by the 
struggle for life which thins out vast numbers of the young 
before they arrive at maturity. In the human race alone the 
conflict of these two opposing forces is complicated by other 
influences. On the one hand regard for the future induces 
many individuals to control their natural impulses; sometimes 
with the purpose of worthily discharging their duties as parents; 
sometimes, as for instance at Rome under the Empire, for mean 
motives. And on the other hand, society exercises pressure on 
the individual by religious, moral, and legal sanctions, some- 
times with the object of quickening, and sometimes with that of 
retarding, the growth of population." — Marshall, Prin. Ec, p. 
229. 

''One should aim less at augmenting the population than at 
increasing the national income, for the condition of greater com- 
fort which is derived from a good income is preferable to that 
in which a population exceeds its income, and is ever in urgent 
need of the means of subsistence. " — i^raiic/s Quesnay. 
" As the fertility of any sj^ecies appears usuall}" to vary in inverse 
ratio to the development of the individuals of the species (for the 
lower species increase in infinitely larger proportions than do 
the higher animals, and man in particular,) — as in the human 
species itself the lower class have generally more children than 
the picked classes, — and further, as there appears to be a phys- 
iological law which would seem to establish an antagonism 
between generative activity and cerebral activity, we may hope 
that the fecundity of the human species is destined to slacken 



I'RlNril'LES OF ECONO.Mirs. 47 

progressively in proportion to the intellectual and moral develop- 
ment of the individuals that compose it." — ^Spencer's Frinriplc. 
Gide, Pol. Econ.^ p. 3i2o. 

••But further, there can be no doubt that fecundity is dimin- 
ished by any great nervous strain. Mr. Galton has indeed 
proved that those who do high mental work are not as a class 
unprolific. But then as a class they have much more than the 
average of constitutional and nervous strength. And it seems 
ceitaiu that given the natural strength of the parents their 
expectation of a large family is diminished by a great increase 
of mental strain. How far this tendency may reach is under 
dispute; but there are some who think it so strong as to make it 
probable that the progress of civilization will of itself hold the 
growth of population completely in check." — MarxhtU, Prin. 
Ec, p. 239. 

'• The general misery of mankind is a fact that can be accounted 
for upon only one of tWo positions, either that there is a tend- 
ency in population to increase faster than capital, or that capi- 
tal has by some means been prevented from increasing as fast 
as it has a tendency to increase. However slow the increase 
of population, provided that of capital is still slower, wages 
will be reduced so low that a portion of the population will reg- 
ularly die of want.'' — James Mill. 

" Elkanah Watson in 1815 estimated the population of the 
United States for each decade until 1900. In 1820 he was only 
about 8,000 out of the way; in 1830 about 32,000; in 1840 
about the same; in 1850 something like 080,100; and in 1860 
over 310,000. Then he took a mighty fall, and was millions 
too much in 1870 and 1880, closing nearly 15,000,000 too high 
in 1890, while his estimate for 1900 of 100,235,985 will prob- 
ably exceed the actual amount by 25,000,000." — Roht. Porter, 

Supt. CriLSUS, ISUO. 

The human family living on earth to-day consists of about 
1,450,000,000 souls; not less, probably more. These are dis- 
tributed literally all over the earths surface, there being no con- 
siderable spot on the globe where man has not found a foothold. 
In Asia, the so-called "cradle of the human race, ' there are 
now about 800,0(10,000 people densely crowded, on an average 
of about 120 to every square mile. In Europe there are 320,- 



48 PRINCIPLES OP ECONOMICS. 

000,000, averaging 100 to the square mile, not so crowded as 
Asia, but everywhere dense and in many places over populated. 
In Africa there are, approximately, 210,000,000, and in the 
Americas — ^ North, South, and Central — 110,000,000; these 
latter, of course, relatively thinly scattered over broad areas. 
On the islands, large and small, there are probably 10,000,000 
more. The extremes of the blacks and whites are as five to 
three; the remaining 700,000,000 interrpediate brown, yellow, 
and tawny in color. Of the entire race, 500,000,000 are well 
clothed — that is, they wear garments of some kind that will 
cover their nakedness; 250,000,000 habitually go naked; 700,- 
000,000 cover only the middle part of the body; 500,000,000 
live in houses ; 700,000,000 in huts and caves, the remaining 
250,000,000 virtually having no place to lay their heads. 

Readings. 

Marshall. Prin. Ec, Vol. I, Chapters IV- V. 

Gide. Pol. Econ., pp. 320-323. 

Herbert Spencer's Prin. of Biology, Part VI. 

Patrick Geddes' "The Evolution of Sex." 

R. E. Thompson. El. Pol. Econ., Chap. IV. 

Walker. Pol. Econ., Adv. Course, Part V,'Chap. I. 

THE LAW OF DIMINISHING RETURNS. 

Principle stated: An increase in the capital and labor applied in 
the cultivation of land causes in general a less than proportionate 
increase in the amount of produce raised, unless it happens to coin- 
cide with an improvement in the arts of agriculture ; or 

After a certain point in the cultivation of land, doubling the 
dose of labor and capital will not give a proportionate increase in 
product. 

1. Marginal Dose. — That which only just remunerates the culti- 

vator. 

2. Marginal Return. — The return which the marginal dose gives. 

Query: How would you define the Margin of Cultivation, 



PRINCIPLES OF ECONOMICS. 49 



THE LAW OF DIMINISHING RETURNS IN RELATION TO 

OTHER INDUSTRIES. 

1. Fisheries. 

2. Mines. 

1. In what way does the Law of Diminishing Returns aft'ect 
the above industries? In what respects differently than 
in agriculture? 

3. Gil round-rents. 

4. Manufactures. 

Questions. 

1. Does the means of subsistence increase in an arithmetical 

progression? Is this too favorable a supposition? 

2. What are some of the most potent checks on the growth of 

population? Which do you deem the most potent to-day? 

3. Does the increased facility of immigration nullify the Mal- 

thusian doctrine? Why? 

4. Trace the connection between the law of Malthus and the 

law of diminishing return. 

5. How does the increasing productiveness of manufactures 

affect diminishing returns on those materials entering 
into manufactured product ? 

6. Why do you accept the law of diminishing returns without 

debate ? 

7. Read (xenesis 13 : 6, and state what economic principle is 

found. 

8. " Thus we need not suppose when the return to extra labor 

and capital has begun to diminish, it will alwa3's continue 
to do so. " Why not ? 
!>. Is there a law of increasing Returns ? 
10. In the absence of anj^ special cause to the contrary, tlic 
growth of population and wealth will make the poorer 
soils gain on the richer." Explain. 

Readings. 

Marshall, Prin. of Ec, Vol. I. pp. 20fi-22r. 

Mill, Prin. Pol. Eron. Laushlin. Chapters !) and 10, 

Gide. Pol. Econ., pp. 333 .333. 

Walker. Adv. Course, pp. 36-43. 



50 PRINCIPLES OF ECONOMICS. 

The Subject of Over=Production. 

1. -There cau not be an excess in production if the increase 
operates simultaneously and proportionately in all branches 
of production. Why ? 

2. Fluctuations in production. 
Causes. 

(1_). Failure of the producers to meet promptly and pre- 
cisely the demands of the consumers. 

(2). Inability to measure the demands of the future. 

(3). Excess of production of certain commodities, due to 
temporary high profits. (Profits tend toward an 
equilibrium. How low can they fall ?) 

(4). Misdirection of productive forces. 

(5j. Confidence destroyed, causing a retrenchment of capital 
and labor. 

3. Crisis. 

"(1). A crisis is a disturbance of the equilibrium between the 
forces of production and consumption. 
(2). Periodicity of Crisis. 
(3j. Causes. 

a. Glut or scarcity of commodities. 
h. Glut or dearth of capital. 

c. Excess or dearth of coin. 

d. Speculation and over-confidence in the future. 

Business is not yaMibling. 
(4). A study of crises in the United States. Principal 
dates: 1837, 1857, 1873, 1893. (Consult Histories 
of the United States and summarize the concrete 
causes.) 

4. Is there reason to fear too much production ? 

(1). J. B. Says "Theory of the Law of Markets." "The 
more abundant and varied produots are, the more 
markets do they find." 

(2). The question of machinery and further invention ? 

a. Does machinery antagonize the laborer's interests ? 



PRINCIPLES OF ECONOMICS. 51 

The Question of Trusts. 

1. Are they to be viewed as the outgrowth of evohitionary 

forces; /. <■., do they mark a stage ia economic progress 
that has had a natural development ? 

2. Explanation of the query. 

Accepting the Historical theory of the origin of society, 
we may mark off successive planes of economic develop- 
ment from primitive conditions to our present complex 
state ; e. (/., 
(1). Primitive society, when everyone produces or attempts 

to produce for himself all that he needs. 
(2). A slight differentiation but with no division of labor as 

yet. Production on a small scale. 
(3). A still more dift'erentiated industrial society, division of 
labor playing a more important part due to larger 
production. 
(4). Successive developments and changes until production 
on a large scale is reached, with well defined divi- 
sions of labor. 
(5). Centralization of labor and capital of the large pro- 
ducers, leading to monopolies. 
(6). What next ? 

Query: If monopolies were not actuated with selfish 
motives, would there be more benefits than evils 
resulting from them ? 
Monopolies Classified — {Ely). 

1. Natural. 

2. Artificial. 
:{. Public. 

4. Private. 
" Monopolies with respect to ownership and management may 
be divided into two classes, public and private. But monopolies 
may be divided iuto two different classes from another stand- 
point. Certain pursuits are monopolies on account of their own 
inherent qualities. These we call natural monopolies, legisla- 
tion neither makes them monopolies, nor can it prevent thein 
from becoming monopolies. All that .legislation can do Is 
to recognize the fact that they are and must remain mo- 



52 PRINCIPLES OP ECONOMICS. 

'nopolies, and to act upoii it. There are other pursuits which 
are made monopolies by legislation, and these we call artificial 
monopolies." — ProhJems of To-day, Ely, p. 108. 
' ' If competition does not necessarily lead to cheapness, it follows, 
a contrario, that monopoly does not necessarily produce dearness. 
It has the disadvantage, it is true, of allowing the producer who 
is invested with this particular monopoly to realize exceptional 
profits, but it may enable him, also, to reduce his prices, through 
economy in his general expenses, thus a trifling disadvantage 
would be compensated by a great advantage. The equalization 
of incomes is certainly a good thing to aim at, but economy in 
production is better. — Gide, Pol. Peon. , p. 69. 

(Read chapters XVII-XX of R. T. Elys "Problems of To- 
Day. ") 

Readings. 

Walker's Pol. Econ. Adv. Course, pp. 171-186. 
Gide's Pol. Econ. pp. 68-71; 334-356. 
Mill's Pol.'Econ., Laughlin, Book IV. 
Davenport's "Outlines of Econ. Theo.," Chap. XIII. 

SELECTED THEMES FOR WRITTEN WORK. 

1. The Aim and Scope of Political Economy. 

2. Schools of Political Economy and the Principles of Each. 

3. The Necessary Elements in the Definition of Wealth. 

4. The Factors that have made the United States a Wealth- 

Producing Country. 

5. Improvement in Machinery iu relation to the Laborer's 

Welfare. 

6. A study of Capitalists and how they became such. 

7. Cost of Production of Wheat. 

8. The G-rowth of Cities in Relation to Economic Causes. 

9. Would the U. S. Grovernment be Justified in Building National 

Roads? 

10. The part the U. S. has played in Expenditures for Public 

Improvement. 

11. Are there Natural Laws in Political Economy? 



I'RINCIPLES Of ErONO.MIOS. 53 

12. Pain as a Factor of Jjubor. 

13. The Meaning of Saving. 

14. Effects Produced on Value by Competition. 

15. Objections to the '> labor-theory " of Value. 

16. Causes determining the Efficiency of Labor. 

17. Is Poverty a necessary Evil? 

18. Physical Causes as Economic Forces. 

19. The Influence of the Invention of Printing on Industry. I>. 

Influence of the Reformation, c Influence of the Discctv- 
ery of the New AVorld. 

20. The Centralization of Capital. Can it be Controlled? 

21. The Origin of Large Business Undertakings. 

22. Induction and Deduction are Mutually Dependent. 

23. Wants in Relation to Activities. 

24. What is a Market? 

25. Ancient Castes and Modern Classes. 

26. The Nature, Origin, and Measure of Value. 

27. The Exact Economic Meaning of Supply and Demand. 

28. Over-Production. 

29. Cost of Production of Straw and Grain, and tbe variance i n 

Values. 



EXCHANGE. 



A Study of Exchange under Primitive Conditions. 

1. Barter. 

<7. Disadvantages of barter illustrated. 
h. A medium of exchange substituted. 
c. Introduction of forms of credit. 

A Study of Exchange under our Present Industrial System. 

1. Trace a bushel of wheat from the farm to the bread-con- 
sumer and note the possible exchanges. 

Advantage of Exchange. 

1. The utilization of a large quantity of wealth which would 

otherwise remain unused. 

2. The utilization of productive abilities which would otherwise 

remain idle. 

3. Simplifies production and affords continuous labor in the pro- 

duction of the same commodity. 

How Exchange is Facilitated. 

1. By middlemen, or traders. 

2. By means of communication and transport. 

3. By the invention of a medium of exchange and a common 

denominator of values. 

4. By forms of credit. 

A. Functions of middlemen or traders. 

1. Bring the producer and consumer together, saving 

time to each in finding the other, respectively. 

2. The quantity offered by the producer and that de- 

manded by the consumer tends towards an equilib- 
rium. 

3. Enables the disposition of the commodity to be effected 

without loss of time; i. e., between the manufac- 
turer of the product and the acquisition by the 
consumer. 

54 



I'MlNCll'l.ES OF ECONOM1("8. 55 

B. Conditions atl'ectiug transportation. 

1. Distance. 

2. The kind or nature of the commoditj-. 

3. (Character or means of transportation and tlie natural 

interferences. 
These obstacles are overcome by 

(1) Macadamized roads. 

(2) Bridges and tunnels. 

(3) Improved means of vehicular carriage on land 

and water. 
(-4) The utilization of nature's forces. 

C. The function of money. — (Jcvnis.) 

1. A common measure or common denominator of value. 

2. A medium of exchange. 

3. A standard of value, or as Walker terms it, "a stand- 

ard of deferred payments.' 

D. The functions of credit. 

(1) The utilizing of existing capital to the best possible 

advantage, for the reason that a large number of 
people can not use their own capital. 

a. Those who have too much. 

h. Those who have too little. 

c. Those who on account of age, sex. or condition of 
life can not employ their capital. 

(2) The formation of new capital. 

(3) Gives an impetus to saving and increases the dispo- 

sition to save. 

(4) Saves the use of metallic money. 

Questions. 

1. Discuss the economic function of traveling men, or '' drum- 
mers." 

2. Each person in the process of an exchange considers that he 
receives more than he gives. Is there any sophistry in this asser- 
tion? 

3. What causes are at work to do away with the shop-keepers? 

4. What disadvantages arise from too many traders? 

5. What is the economic function of a city market? Of a State 
Fair? 

G. " Exchange is the giving up of a comparatively superfluous 



5(3 . PRINCIPLES 01' ECONOMICS. 

thing for one that is comparatively necessary." Examine the mean- 
ing of this definition. 

Of Money. 

1. The necessity of a common measure, 

2. Primitive forms of money. 

(1) Leather, wampum, cattle, skins and furs, rice, salt, silk, 
wheat, copper, iron, etc., etc. 
.3. Requisites for a perfect money. 

(1) Eoumerated by G-ide. 

a. Easiness of transport. 
h. Identity of quality. 

c. Difficulty of counterfeiting. 

d. Perfect divisibilit}'. 
r. Indefinite durability. 

(2) Enumerated by Jevons. 

a. Value. 

I). Portability. 

c. Divisibility. 

d. Indestructibility. 

e. Homogeneity. 

/. Stability of value. 
g. Cognizability. 

(3) Enumerated by Parsons. 

a. General acceptability. 
- h. Limitation of volume 

c. Steadiness of value. 

d. Portabilit3^ 

p. Ease of keeping. 
/'. Ease of concealment. 
g. Difficulty of counterfeiting. 
h. Durability. 
i. Divisibility. 
/. Elasticity. 
h. Uniformity. 
I. Cheapness. 

4. Application of these essentials to different commodities \ e. g., 

gold, silver, iron, paper, corn, labor, etc. 

5. The Law of Mutiple Standard. 



VRlNCll'LKS OF ECONOMICS. 



57 



'•A long contract, like a government or a railway bond, ought 
not to be settled by paying back the amount of gold or silver 
borrowed, but by giving the leader a sum which would, at the 
time of payment, purchase the amount of commodities for which 
the money loaned could have been exchanged at the time that 
it passed from the lender to the borrower.'' 
The Law of Multiple Standard takes into consideration the i>ur- 

chusiiig power of money, no matter whether a greater or less (imount 

of money is to be returned. 

Newcomb's "Principles of Political Economy," p. 211, shows 

what the actual working of this system is by the following table, 

exhibiting the prices of certain necessaries of life in New York 

markets. 



ITEMS 


1876 


1880 


1884 


1 bbl. corn-meal ... 


$ 3 68 

12 42 

7 72 

7 65 
5 53 
2 58 

8 90 
34 

1 34 

5 60 

9 00 
10 00 

7 20 

2 80 

6 12 
2 84 

36 
10 70 

2 98 

3 30 


$ 2 80 

11 76 

7 78 

7 40 

3 47 
2 30 

7 52 
30 

2 06 

4 08 

8 80 

6 20 
.) 10 

1 60 

7 50 

2 92 
30 

9 00 

2 98 

3 80 


$ 3 24 


2 bbls. flour 


11 18 


1,000 brick 


7 59 


500 feet lumber 


8 53 


1 ton coal 


4 70 


20 lbs. cotton 


2 10 


^ ton hay . 


9 16 


2 cwt. ice . . 


23 


1 cwt pig'-iron . 


1 28 


2 pair shoes 


4 80 


100 lbs. beef 


9 90 


100 lbs. pork 


7 90 


30 lbs. butter 


5 40 


10 doz. eggs 


2 10 


10 bu. potatoes 


6 75 


40 lbs. rice 


2 40 


1 bu. salt 


39 


100 lbs. sugar 


7 10 


1 cord wood ... 


3 58 


10 lbs wool 


3 00 






Total (1 " multiple unit " ) 


*111 66 


$98 27 


$101 33 







The Claims of the Multiple Standard. 

1. The moral and economic need of a dollar of unchanging po ver 
of purchase. 

2. The unsteadiness of gold and silver. . 



58 PRINCIPLES OF ECONOMICS. 

3. The steadiness of a composite commodity standard. 

4. The practicabilit}' of keeping the dollar in harmony with the 

multiple commodity standard by careful regulation of the 
money volume. 

5. The publicity, definiteness, and importance of the standard 

and its operation would constitute a strong protection 
against fraud. 

Readings. 

" Rational Money." by Frank Parsons, pp. 1:24-I(i0. V. P. Taylor. Publisher. 
Phila.,25c. Gide Pol. Econ., pp. 81-88. 

Qresham's Law. 

' ' In every country where two legal moneys are in circulation, 
the bad money always drives out the good." 

Circulation of good money ceases by 

1. Hoarding. 

2. Selling by weight. 

3. Payments to the foreigner. 

Selling by Weight Illustrated. 

"In 1820 the market ratio of gold in a dollar (24f) grains 
would exchange for 15.7 times as many grains of silver in the 
market, in the form of bullion; while at the mint, in the form 
of coin, it would exchange for only 15 times as many grains of 
silver. A broker having 1,000 grains of gold dollars could buy 
with them in the market silver bullion enough (1,000 X 15.7 
grains) to have coined, when presented at the mint, (1,000 
dollars in silver pieces, and yet have left over as a profit by the 
operation 700 grains of silver. So long as this can be done, 
silver (the cheapest money) will be presented at the mint, and 
gold (the dearest money) will become an article of merchandise 
too valuable to be used as money when the cheaper silver is le- 
gally as good." — Laugldins Mill^ p. 319. 

Qresham's Law Applies to the Following Cases: 

1. When a worn money circulates with a newly coined money. 

2. When a depreciated paper money circulates with a metallic 

money. 

3. When a light money is in circulation with a right money, or 

a right money is in circulation with a heavy money. 



I'RINCU'LKS OF K('(»NOMiCS. TlU 

4. In general when two moneys are governed by the same rules 
and regulations, and there is a variance between the market 
or commercial ratio and the legal or mint ratio. 
Bimetallism Defined. 

1. Bimetallism is a system ot coinage in which two metals are 

coined, subject to the same governmental regulations and 
restrictions. 

2. Claims of the Bimetallist. 

a. The adoption of the single gold standard involves the 

demonetization of silver. 
h. If all countries took gold as their standard, there is 

fear that the supply would not be sufficient, 
c. The variations in price are more to be feared with a 
single standard of values than with a double standard. 
Coinage Defined. 

Coinage is the act of assaying, subdividing, and stamping a 
metal intended to be used as money. 

A coin is an ingot of metal stamped by the government certify- 
ing its weight and fineness. 

Free Coinage is the coinage of a metal by the government, the 
bullion being owned by an individual and coined on private account. 
Query: Do we have free coinage of gold to-day? 
The term '■'■16 to i" expresses the value of gold to silver as a 
mint ratio; i. e. , for every grain of gold in a gold dollar, sixteen 
times as many grains of silver would be placed in a silver dollar. 
Since 183-1, the ratio although commonly stated 1G:1 has been 
15,988 to 1, or expressed in grains 371.25 to 23.22. 
Legal Tender Defined. 

1. A legal tender, as applied to money, is such a mone}' which 

the law makes capable to discharge a debt at maturity. 

2. The effects of a refusal to accept are 

a. To stop the accrual of interest from the date of the tender. 
h. To throw upon the creditor the costs of a suit to collect, 
c. To discharge and release whatever pledge, mortgage, or 
other security given. 

3. Legal tender money of the U. S. consists of 

a. Gold coins to any amount. 

b. Silver dollars and Treasury notes of 1890 issue, unless 

otherwise expressly stipulated in contract. 



60 PRINCIPLES 01' ECONOMICS. 

c. United States notes (greenbacks), except for interest on 

public debt and for duties on imports. 

d. National Bank notes, legal tender in payment of any debt 

or liability to any National Bank; also receivable for 
all government dues except duties on imports, and 
tenderable for all government dues except interest on 
bonds. 

e Silver coins smaller than one dollar, legal tender to the 
amount of ten dollars in any one paj'ment. 

/ Coins of nickel and copper, to the amount of twenty-five 
cents. 

The Quantity Theory of Money. 

The quantity theory of money assumes that " the value of money 
(whatever that money may, in the place and at the time, consist of) 
depends, like the value of anything else, on the relations of demand 
and supply; that prices are determined in the amount of goods 
offered for money and the amount of money offered for goods." It 
takes into account the number of money pieces, and the rapidity of 
circulation. 

Readings. 

Pro: 

Francis A. Walker— The Quarterly .lournal of Economics, October, 1893. 
Amasa Walker— The Science of Wealth, pp. 169-184. 
J. S. Mill, Laughlin's Edition, pp. 305-311. 
J. L. Laughlin, Political Economy, pp. 77-80. 

Contra: 

White— Money and Banking, pp. 419-426. 

Miss Sarah M. Hardy— The Journal of Political Economy (Chicago), 
March. 1893. 

Summary of flonetary Events in the United States. 

1792 — Adoption of the ratio of 1 to 15, and the establishment of a 
mint with free and gratuitous coinage; the silver dollar 
equal to 371^ grains fine, the eagle to 247|- grains fine. 

1792-1834 — Transition from a gold to a silver basis, due to a 
variance of legal and commercial ratios. 

1805-1836 — No silver dollars coined. President Jefferson issued 
the order. 



PRINCIPLES OF ECONOMICS. 61 

1834 — Substitution of the ratio 1 to 1(1. Gold dollar made 23.22 
grains pure. 

1837 — Fineness of gold coins was raised from .809225 to .900, and 
the silver coins from .8924 to 900 giving a ratio of 1 to 
15.988, and fixing the standard weight of the silver dollar at 
412^ grains. 

1834-1853 — Transition from a silver to a gold basis. 

1847 — Discovery of gold in California. 

1853 — 1. Subsidiar}- silver coin reduced to 345.6 grains as compared 
with the dollar 371.25 grains. 

2. Legal tender of fractional silver currency limited to $5. 

3. Amount limited at the discretion of the Secretary of the 
Treasury. 

1853-1878 — Single gold currency, except the paper period. 

1861 — July 17 and August 5 — 50 millions of demand notes author- 
ized in denominations of $5 and upwards, bearing no interest 
and receivable for public dues. 

1861 — Dec. 28 — Suspension of specie payments. 

1862 — Feb. 12 — Further issue of 10 millions authorized. 
Mar. 17 — Made legal tender. 

1862— Feb 25 — 150 millions of U. S. notes authorized. 
July 11 — 150 " " " " " 

1863— Mar. 3 — 150 " u .. << a 

These notes were ' ' receivable in payment of all taxes, inter- 
nal duties, excises, debts, and demands of every kind due the 
United States, except duties on imports, and of all claims 
and demands against the United States, except for interest 
on bonds and notes, which shall be paid in coin. Fifty mil- 
lions of said notes shall be in lieu of the demand treasury 
notes authorized ])y the act of Jul^y 17, 1861; which said 
demand notes shall be taken up as rapidly as practicable." 

1862-1879— Paper period. 

1873 — Increase of the intrinsic value of the subsidiary coins of the 
U. S. Replacing of the double standard by the gold stand- 
ard. Creation of the trade dollar of 420 grains. Silver 
dollar dropped from coinage. 



62 PRINCIPLES OF ECONOMICS. 

1878.^ — Bland- Allison act. Congress provided for the purchase of 
silver at the market price thereof, of not less than $2,000,- 
000 worth per month, nor more than $4,000,000, and the 
coinage of the same as fast as purchased into silver dollars 
of 412|- grains. 

1878. — Average price per fine ounce, $1.2048. 
Bullion value of a silver dollar, $.9318. 

1879 — Resumption of specie payments. 

1887 — Retirement of the trade dollar. 

1890 — Sherman Act provided for the purchase of 4,500,000 fine 

ounces of silver each month, to be paid for by treasury 

notes, payable in coin. 
1890 — Average price per fine ounce, $.9668. 

Bullion value of a silver dollar, $.7477. 
1893 — Repeal of the compulsory clause of the act of July 14, 1890. 

(For complete statistics, consult the annual "Report of the 

Director of Mint," sent upon request.) 

Salient Facts in the World's Monetary Legislation. 

1803 — France adopted the double standard, 15|- to 1. 

1810 — Russia adopted the silver standard. 

1816 — England adopted the gold standard. 

1832 — Belgium introduced the French monetary system. 

1844 — Turkey adopted the double standard. 

1847 — Holland adopted the silver standard. 

1850 — Switzerland adopted the French system. 

1851 — Gold discovered in Australia. 

1854 — Portugal adopted the gold standard. 

1862 — Italy adopted the French system. 

1864 — Formation of the Latin Union, — France, Belgium, Switzer- 
land, Ital3\ Ratio, 16 k to 1. 

1867 — First International Monetary Conference at Paris. 
1868 — Grreece admitted to Latin Union. 
1868 — Spain adopted the French system. 
1871 — Germany adopted the gold standard. 
1871 — Japan adopted the double standard. 



PRIXCIPLES OF ECONOMICS. Go 

1873 — Holland suspended silver coinage. 

1873 — Formation of the Scandinavian Monetary Union on a gold 

basis. 
1875 — Italy suspends free coinage of silver. 
1892 — Austro-Hungary adopted gold standard. 
1895 — Chile adopted gold standard. 
1897 — Russia and Japan adopted gold standard. 

Silver Coinage in the United States. 

1798-1853 — Free and unlimited coinage of silver. 
1853-1873 — Dollars onl}' were coined on private account. 
1873-1899 — No silver coined except on government account. 

1793 to 1853 
Dollars AH Other 

$2,407,59(1 $76,708,309.40 

1853 to 1873. 
$5,638,248 $60,361,246.70 

1873 to June 30. 1898 
$434,964,953 $89,329,857.60 



64 



PRINCIPLES OF ECONOMICS. 



Statement of the Public Debt and of the Cash in the 
Treasury of the V. S., April 1, 1898. 



INTEREST AND NON-INTEREST BEARING DEBT OF THE U. S. 



Interest-hearing debt 

Debt on which interest has ceased since maturity. 



x> o 
<o a 
C 



U. S. Notes 

Old Demand Notes 

National Bank Notes 

Redemption Account 
Fractional Currency.. 



Feb. 35. 1862; July IJ, 1863; 

March 3, 1863 

July 17, 1861; Feb. 13, 1863. . . 



July 14, 1890. 



1346,681,016.00 
54,347.50 



32,613,318.,50 
6,885,253.14 



Aggregate of interest and non-interest bearing debt, exclusive of 
bonds issued to Pacific R. R.'s 



CERTIFICATES AND TREASURY NOTES ISSUED ON DEPOSIT 

OF COIN AND LEGAL TENDER NOTES AND 

PURCHASES OF SILVER BULLION. 





March 3, '63; 

July 13, '83.. 
Feb. 28, '78 

Aug. 4, '86 
March 3, '87 

June 8, '72 


In the 
Treasury 


In Circu- 
lation 


Amount 
Issued 


Gold Certificates. 

Silver Certificates 
Certificates of 


$1,607,950 

6,859,608 
3,330,000 
3,905,848 


|36,319,K9 

i:8r 770,898 
37,900.000 
99,709,432 


$37,937,149 

394,630,504 
41,330,000 


Treasury Notes 
of i890 


July 14, '90 


103,615,280 



THE secretary's REPORT, JULY 1, 1899, SHOWS 

THE FOLLOWING: 

General Stock of Gold Coined f 855,583,055.00 

Gold in Circulation 702,060.459.00 

National Bank Notes Issued 241,350,871.00 

National Bank Notes in Circulation 337,832,594.00 

Standard Silver Dollars in Circulation 63,381,751.00 

Per Capita Circulation in the U. S , , 25.38 



March 31. 

1898 



$847,366,680.00 

1,283,780.26 



386,232,834.14 



1,234,883,294.40 



PRINCIPLES 01' ECONOMICS. 65 

Questions. 

1. Give the etymological significance of the word (a) j^ecuniary 
(6) estimation. 

2. What are the objections to barter as a form of exchange ? 

3. Wh}^ are the metals minted ? 

4. Define seigniorage. 

5. Does the political economist regard money as wealth ? 

6. Is it economic to speak of " buying and selling money " ? 

7. What objections can you offer to a commodity multiple 
standard of values ? 

8. How would such a standard be brought about and main- 
tained ? Do you think a standard could be arranged for the whole 
United States ? 

9. Define the term "resumption of specie payments." 

10. Define («) demonetization, {h) Kemonetization. 

11. What is meant by the "crime of 1873," and why so called? 

12. What is the present market ratio of silver to gold ? 

13. Consult to-day's market reports for the price of silver and 
determine the bullion value of a silver dollar. 

14. Was gold more valuable in the market as bullion, or as 
money from 1792 to 1834 ? What was the effect ? 

15. Is the United States coining silver dollars at the present 
time ? Is the United States buying silver ? 

16. What is the legal tender power of the silver dollar to-day ? 
Of fractional currency ? 

17. Examine all the kinds of paper money used in the United 
States as to the legal tender qualities of each. 

18. The gold standard man says: "If we restored silver to a 
free coinage basis at 16 to 1, we would be compelled to double the 
value of silver and maintain its parity with gold, or else we would 
become a monometallic silver country." Examine this statement 
from a historical economic point of view. 

19. What is to be understood by " International Bimetallism" ? 

20. Are the values of gold and silver subject to exactly the 
same laws as other commodities ? 



66 PEINCIPLES OF ECONOMICS. 

Illustrative Quotations. 

' ' Exchange enables us to utilize for the best a large quantity of 
wealth which without it would have remained unused. Without 
exchange what would England do with her coal, California with 
her gold, Peru with her guano, Brazil with her bark ? When 
analyzing the nature of wealth we found that an indispensable 
condition for any object ranking as wealth was its capability 
of being utilized. For this to be effected exchange must convey 
the article to the person who is to use it — the quinine to the 
fever patient, guano to the farmer, coal to the manufacturer, 
etc. Not only must we say that without exchange the greater 
part of wealth would be unused, but we must add, it never 
would have been produced at all." — Gide, Pol. Econ., p. 172. 

" Some years since Mademoiselle Zelie, a singer in the Theatre 
Lyrique at Paris, made a professional tour around the world 
and gave a concert in the Society Islands. In exchange for an 
air from Norma, and a few other songs, she was to receive a 
third part of the receipts. When counted her share was found 
to consist of three pigs, twenty-three turkeys, forty-four 
chickens, five thousand cocoanuts, besides considerable quan- 
tities of bananas, lemons, and oranges. At the Halle in Paris, 
as the prima donna remarks in her lively letters, this amount of 
live-stock and vegetables might have brought four thousand 
francs, which would have been a good remuneration for five 
songs. In the Society Islands, however, pieces of money were 
very scarce, and as Mademoiselle could not consume any con- 
siderable portion of the receipts herself, it became necessary in 
the meantime to feed the pigs and poultry with the fruit. " — 
Jevons, Money arid Mech. of Ex.., ]?• 1- 

' < Exchange is the indispensable condition of civilized life. The 
vital principle of exchange is equality of value in the things 
exchanged. In order that there may be equality of value there 
must be a measure of value. Money is anything that serves as 
a common medium of exchange and measure of value. It need 
not be a good measure; it is only necessary that it should be the 
agreed measure of any time, place, or people. We are now 
speaking of real money, not of its representatives or substi- 
tutes." — Money and Banking; White, p. S. 
"Barter is too complex, cumbrous and difficult to answer for 



PRINCIPLES OF ECONOMICS. 67 

the exchanges of a highly developed community. Some article 
is, therefore, selected, first by custom, and afterward by law, to 
act as a medium in terms of which all exchanges may be made. 
This device lubricates the action of exchanges, avoids the trans- 
fer of bulky articles, permits the indefinite division of wealth 
and value, and renders easy a volume and variety of commerce 
that would otherwise be impossible." — Parson's Ratio)ial Money 
p. 80. -^ 

" But within responsible limits we do not hesitate in believing 
that an international agreement would be efficacious in fixing 
the respective values of the two metals, and consequently in 
doing away with the chief disadvantage of bimetallism, the dis- 
appearance of one of the two moneys. For whither would it go, 
seeing that in every country it would be subjected to the same 
law? If at present gold tends to escape from France to England, 
that is because gold is worth more in England than in France ; 
in France it is worth only \^\ kilogrammes of silver; in England 
it is worth 18 to 20; but if in P^ngland, too, its worth was fixed 
by law to be no more than 15|^ kilogrammes of silver, where 
would the exporters profit come in? If in France an ox could 
not be sold for more than one sheep, all oxen would assuredly be 
sold abroad ; but if abroad, too, they were treated on exactly the 
same footing, they would remain where they were." — Gide.^ 
Pol. Econ. , p. 213. 

" A few propositions may now be taken as established: 

1. The volume of exchanges furnishes the normal demand for 
currency. 

2. Increase in the supply of currency, whether by coin, green- 
backs or credit, tends to depreciate the unit, that is, to 
raise prices. 

3. The value of the unit, if made of coin, ultimately equals 
its marginal cost of production ; that is to say, free coinage 
finally fixes the value of the unit at the value of the con 
tained bullion (seigniorage is unimportant for this pur- 
pose). 

4. If two metals are to circulate side by side, they must 
maintain exact market parity at the coinage ratio, else but 
one will circulate, and that the cheaper. 



68 PRINCIPLES OF ECONOMICS. 

5. The use of gold as currency tends to enhance its market 
value, and has thereby greatly increased the amount pro- 
duced. 

6. Demonetization, partial or complete, of gold, temporarily 
at least, will lower its value, and discourage production, 
till the over-supply has drained away. Ultimately its 
value would again come to coincide with its marginal cost 
of production. 

7. The demonetization of silver would tend to raise its value 
and to stimulate its production with the final outcome that 
the purchasing power of the unit would fix itself at the 
cost of production mark. 

8. It is then possible that the free coinage of silver at any 
reasonable ratio, should bring about a parity between gold 
and silver. If this ratio did not approximately correspond 
to the normal cost of production raiio, it would be short- 
lived in proportion as it was wide of this mark." — Daven- 
port, Outlines of Ec. Theo , p. 871. 

Readings. 

J. S. Mill, Pol. Econ., Laughlin's Edition, pp. 313-324. 

Walker's Pol. Econ., adv. Course, pp. 120-151. 

Gide's Pol. Econ., pp. 74-84; 186-213. 

Money and Banking — Horace White. An excellent treatise- 

History of Bimetallism in the U. S.— J. L- Laughlin. 

Money and Mechanism of Exchange (1876) .— W. Stanley Jevons. 

The Silver Situation in the U. S. (1892).— F. W. Taussig. 

Money (1878) .— Francis A. Walker. 

Davenport s Outlines of Ec. Theo., pp. 324-25.5. 

Money and Monetary Problems (1895).— J". S. Nicholson. 

The Financial History of the U. S.— A. S.Bolles. 

American Political Economy, pp. 373-393.— Francis Bowen. 

Andrew's Inst, of Ec, pp. 117-158. 

Bullock's Intro, to Study of Ec, pp. 310-255. 

Of Paper Money. 

1. Kinds of. 

( 1 ) Representative — that which represents an equal sum of 

coin deposited somewhere. 

(2) Fiduciary, or credit paper — that which represents a 
promise to pay a certain sum of money. 



PRINCIPLES OF ECONOMICS. G9 

(3) Conventional or fiat — that which the Government says 
is money; fiat, ht it he. 

2. Objections usually given. 

(1) Value of paper money is precarious, while the value of 

the metals is determined by natural causes. 

(2) Value of paper money is necessarily restricted to the 

jurisdiction Of the territory in which it is intended to 
circulate. 

(3) Value of paper money lacks permanence. 

3. Dangers resulting from its use. 

(1) Premium on gold. 

(2) Rise in the rate of exchange. 

(3) Metallic money driven from circulation. 

(4) Duplication of prices — one in paper, tie other in 

gold. 



70 



PRINCIPLES OF ECONOMICS. 






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PRINCIPLES OF ECONOMICS. 71 

Questions. 

1. "Credit is not a creation, but a transfer of Capital." Ex- 
plain. 

2. Can an inconvertible currency be made to maintain the same 
value as a convertible currency, and, if so, how? Supposing that 
it can, what objections are there, nevertheless, to it? 

3. How is it a bad dollar does the work of buying as well as a 
good one until it is found out? 

4. To what extent is a government capable of giving fictitious 
value to a paper or a metallic currency? 

5. Tell in what ways you could pay a debt of 150 in legal tender, 
U. S. paper money. 

6. Ninety per cent, of the business of the United States to-day is 
done on a credit basis. Explain the statement. 

7. The nearer we approach to a pure credit system, we near the 
restoration of barter. Explain. 

8. If a paper money should always have a foundation on 
actual property, would any of its dangers be obviated? 

9. In a country with an inconvertible paper currency, how can 
it be determined whether the issues are excessive or not? 

10. Do you think a paper currency could be maintained per- 
fectly by international agreement? 

11. President Grarfield once said: "We do not export paper 
money, for the same reason we could not export bad cheese or ran- 
cid butter," Wherein is the analogy? 

12. What is the cost of production of a paper currency? What 
is the difference in the depreciation of value of paper and metallic 
moneys, as to the extent of the depreciation? 

13. Is the creation of paper money, the creation of wealth? 

14. Ricardo said: " The whole charge for paper money may be 
viewed as seigniorage." Explain. 

15. What is meant by inflation? 

16. May paper money serve as a standard of deferred payments? 
As a value denominator? 

17. Did the U. S. Demand notes, issue of 1862, depreciate 
along with the " Greenbacks " ? 



72 PRINCIPLES OF ECONOMICS. 

18. Could you legally have a die and stamp metals as coin, pro- 
vided you used an original design? 

Illustrative Quotation. 

"What determines the value of any kind of money? What 
determines the value of anything? Demand and supply. The 
demand for money is, the amount of mone} -work to be done, 
the amount of exchanging requiring to be effected, through the 
use of money. The supply of money is the money- force avail- 
able to do the money-work. It is compounded of the volume of 
the circulating money and the rate of circulation. Suppos- 
ing the occasion for the use of money — the demand — to 
remain the same, and the rate of the circulation of paper to be 
the same as tbat of metal, the value of a body of paper money 
would be the same as that of a body of money consisting of as 
many pieces of metal as there were pieces of paper, the pieces 
being of the same "denominations," whether stamped with the 
mint press or the printing-press." — Walker, Adv. Pol. Econ., 
2J. 158. 

"It is not necessary that paper money should be payable in 
specie to secure its value; it is only necessary that its quantity 
should be regulated according to the value of the metal which is 
declared to be the standard." — Ricardo. 

' ' I know of nothing in the history of inconvertible paper money to 
indicate that such money, when issued of a denominative value 
not to exceed the mint value of the coin which would have cir- 
culated in the community under the law for the territorial dis- 
tribution of money, may not serve as the general medium of 
exchange, so far as ther internal trade of a country is concerned, 
in every way as satisfactorily as the coin itself. Indeed, if any 
preference exists, it will be in favor of the paper money, as 
more convenient to handle, more readily transported, more suc- 
cessfully concealed. " — Walker, p. 162. 

' ' When, therefore, the question is asked, <■ Does it lie within the 
power of a government or a banker actually to augment the 
wealth of a country by the emission of paper money? ' it is not 
perfectly correct to answer in the negative. As a matter of 
fact, the affair is feasible, hut only up to the total amount of 
metallic money in circulation. 



PRINCIPLES OF ECONOMICS. 73 

" But we must note that this gain would be realized only by 
some countries, not by all at once. One country can certainly 
productively utilize its metallic stock by selling it abroad; but if 
every country wished to do the same, it is evident that none of 
them would succeed. Gold and silver specie being offered by 
all countries seeking to get rid of them, and being demanded by 
none, would become a drug on the market, and henceforward 
valueless." — Gide, Pol. Kc<m.^ p. ,2'21. 

Readings. 

J. S. Mill. Pol. Econ. Laughlin's Ed., pp. 344-363. 
Walker. Pol. Econ. Adv. Course, pp. 152 IK*^ 
Rational money. Parsons, pp. 1-79. 
Gide. Pol. Econ., pp. 214-235. 
Davenport. Outlines of Ec. Theo., pp. 260-272. 
Money and Banking. White, pp. 117-1!)8. 
United States Notes. John Jay Knox, (1884). 
History of American Currency. W. G. Sumner. 

(Splendid bibliography will be found in White's "Money and Banking" pp. 46ii 
477; also in Laughlin's Mill, pp. 633-635 a bibliography of bimetallism). 

Of Banks and Banking. 

1. Establishment of early banks. 
(1). Venice, 1154 (?). 

(2). Genoa, 1407. 

(3). Amsterdam, 1609. 

(4). Sweden. First issued bank money, 1658. 

(5). England, 1694. First issued notts below £20, 1759. 

(6). Scotland. First issued £1 notes, 1704. 

(7). France, 1800. 

(8). United States, 1791. 

2. Fundamental operations of all banking business. 
(1). Deposit. 

(2). Discount. 
(3). Issue. 

3. Kinds of banks existing to day in the various States. 
(1). Private. 

(2). State. 
(3). Savings. 
(4). National. 

4. Distinctions between bank notes and credit papers. 
(1). It yields no interest. 



74 PRINCIPLES OF ECONOMICS. 

(2). It is transferable by delivery. 

(3). It is payable at sight. 

(4). It is payable on demand. 

(5). It is payable for a liquidated amount. 

(6). It is issued and signed by a known bank. 

Theories Concerning the Issuing of Notes. 

1. The Currency Principle. 

Under this system a certain proportion between the sum 
total of the reserve and the amount of notes in circula- 
tion is required. The Bank of England since the Act of 
1844 has been under this regime. 

2. The Banking Principle. 

This system is explained in the quotation from Walker, 
infra. It involves the principle of the liberty of banks, 
the antithesis of the Currency Theory. 

3. The Security Principle. 

This system compels banks to guarantee the notes issued 
by securities, genei'ally securities of government stock. 
The National Banks of the United States are operated in 
this way. 

4. Another system attempts to fix the maximum of issue. It 

has been resorted to in France since 1870. 

Some Pacts Concerning Famous Banks. 

1. The First United States Bank. 

Began operation in 1791 in Philadelphia. Capital, 
$10,000,000, $2,000,000 of which the United States 
was to raise, the rest to be subscribed by the people. 
Chartered for 20 years. The bank was to keep the pub- 
lic revenues, negotiate loans, and aid in making pay- 
ments over all the country. Branches in the chief 
towns and cities were authorized. Bank bills, receiv- 
able for public lands, taxes, duties, postage, or any 
debt due the government, could be issued, which bills 
were payable on demand in specie. 

2. National Banks (U. S.). Established by Act of Congress, 
1863. 

This system is under the supervision of the Comptroller 
of the Currency. Banks are required to redeem their 



PRINCIPLES OF ECONOMICS. 75 

notes in legal money upon demand of the holder. Bonds 
of the National government are required to be deposited 
in the U. S. treasury, and the issues in paper can not 
exceed 100% of the bonds so deposited. Also, the 
maximum of notes bear a certain relation to the capital 
of the bank-; viz., to banks having capital between 
$500,000 and $1,000,000, 80%; between $1,000,000 
and $3,000,000, 75%; exceeding $3,000,000, G0%. 
The government guarantees the circulation of the notes, 
and receives them for all dues, except customs-duties. 

3. The Bank of England. 

Act of 1844 provided: (1) The Baak could issue notes 
in the constant sum of £15,000,000, without any specie 
basis. (2) For all issues above this amount, it must 
have a specie reserve, pound for pound, of which one- 
fifth may be silver. (3) The issue and banking depart- 
ments are completely divorced. (4) No other London 
bank could issue notes, nor any English bank chartered 
since 1844. (5) English banks then in existence were 
limited to the outstanding circulation prior to that date. 
For week ending March 23, 1898, the statement of 
the Bank of England showed notes issued £47,671,010. 

4. The Bank of France. 

Founded by Napoleon, 1800, and was privileged to issue 
notes in 1803 in Paris, and in its established branches. 
Since 1848, it has had the monopoly of issue. It is a 
joint stock company. The principal regulations are: 

(1) It can not pay interest on deposits. 

(2) It can make advances on stocks, securities, and 

bullion. 

(3) It may make uncovered advances to the gov- 

ernment. 

(4) It can discount bills of exchange bearing at 

least three signatures, and drawn for ninety 
days after date. 

(5) It can not issue notes beyond a certain limit. 

Up to 1897, the limit was 3,500,000 francs. 
The statement of the bank, week ending March 24, 
1898, showed a capital of 182,500,000 francs; notes in 
circulation, 3,698,764,450 franco. 



76 PRINCIPLES OF ECONOMICS. 

Questions. 

1. State some differences between bank notes and paper money. 

2. What is meant by "wild-cat" money in U. S. History? 
When was the period? 

3. Have banks in the U. S., other than National Banks, the 
right to issue notes? Do they? If not, why not? 

4. Could state bank notes ever circulate as legal tender? Give 
reason. 

5. Hlustrate by a problem the meaning of Bank Discount. 

6. Was it the intent of the framers of our constitution that 
paper money should ever be issued by the government? 

7. Grive the meaning of premium and discount as applied to the 
rate of exchange, and show concretely the cause of each. 

8. What is arbitration of exchange? 

9. Is it possible for any one to ever lose a cent by the failure of 
a U. S. National Bank (1) as regards holders of its paper, (2) as 
regards depositors? 

10. What are the objections to a State Bank's issuing paper to 
circulate as money? 

Readings. 

Walker. Pol. Econ., Adv. Course, pp. 166-171; 439-448. 

Lalor. Cyclopedia of Political Science, subject, Banks. 

"Investment Guide." Published by Henry Clews & Co., Bankers, New York 

City. Valuable for up-to-date statistics. Sent upon request. 
Gide. Pol. Econ., pp. 271-319. 
Banking and Credits. Prof. J. B. Duryea. An excellent treatise, published by 

the author at Des Moines, Iowa. 
Money and Banking. White, pp. 235-419. 
J. S. Mill, Pol. i:.coD., Laughlin, pp. 330-334. 
Hinsdale. American Government, pp. 207-211. 
Davenport. Outlines of Ec. Theo., pp. 364-369. 
Theory and History of Banking (1891) 0. F. Dunbar. 
The Elements of Banking, (1885). H. D. Macieod. 

For legislation on Banks a.nd Banking, consult your State Constitution and 
State Statutes. 

Iowa Code, 1897: -Savings, Sections 1840-1860. State, Sections 1861-1867. General 

Provisions, Sections 1868-1889. 
State Constitution of Iowa, Art. 8. 

The Worltings of a Clearing House. 

I. Checks, drafts, and all matter suitable for clearing are listed 
and footed upon properly headed blanks (1) at each bank 
according to Clearing House rules. 

11. Matter for clearing with credit slip (2) signed by the teller, 



PRINCIPLES OF ECONOMICS. 



77 



showing total amount sent to the Clearing House by mes- 
senger. 

III. Exchange of matter made at Clearing House and slip (3) 
prepared by each messenger showing business done by his 
bank and given to clerk of Clearing House. 

IV. Settlement made on books of Clearing House, and Clearing 
House checks (4) given to banks having credit balances 
against banks having debit balances. 



[1] Citizens' National Bank [1] Citizens' National Bank 

IN ACC'T WITH QN 

Des Moines Clearing House. IOWA NATIONAL BANK, 

DR. CR. Des Moines 190. . . 



Des Moines National Bank, 

Iowa National Bank, 

Valley National Bank, 

American Savings Bank, 

Capital City State Bank, 

Des Moines Savings Bank, 

Grand Ave. Savings Bank, 

People's Savings Bank, 

Home Savings Bank, 

Marquardt Savings Bank, 

German Savings Bank, 

Bankers' Iowa State Bank 

Central State Bank. 



Bal. Dr Bal. Cr. 

190 . 



78 



PRINCIPLES OF ECONOMICS. 



[2] 



BANK No. 1. 
CREDIT 



Des Moines, 190. 



Citizens' National Bank, - $ 



Amount of checks to Clearing House this day per Messenger 
Teller. 



[3] 



o 

H 

OJ 

z 

< 

< 


NO. 1 Des rioines Clearing House, 190.. 




Amount Recei 
Amount Brou 


ved $ 








ght $ 














Debit $ ... 


















Credit Bal. Due Citizens' Nat'l 


Bank $ 














Messenger. 





[4] 



$ Des Moines Clearing House. 

In the settlements of the balances of the Exchanges made 
between the members of the Association to-day there is due 

from (No ) 

the 

DOLLARS, 

payable on demand, to (No ) the 

not transferable, and without recourse on any other member of 
this Association after two o'clock p. m. of this day. 

GEO. E. PEARSALL, Mgr. 
Per Ohas. E. Lynde, Clerk. 



PRINCIPLES OF ECONOMICS. 79 

Illustrative Quotations. 

" Tke view of the operations of bank money which is held by 
the great majority of writers of repute, in nearly all countries, is 
that, when really convertible into coin on demand; with all rea- 
sonable facilities existing for redemption, and with redemption 
actually taking place from time to time; with a public opinion 
which does not allow to be questioned the right of any man any- 
where, for any reason or for no reason, to require coin, for any 
and all notes he may hold; and with exemplary penalties, pro- 
vided by law and enforced by the courts for the first failure or 
the slightest delay on the part of banks to make good their prom- 
ises, such money acts in all respects precisely as would a body 
of money composed wholly of coin. 

"The question whether a body of money composed partly of coin 
and partly of bank notes fully convertible into coin acts in all 
respects as would a body of money composed wholly of coin, or 
on the other hand, has the capability of being issued in local 
excess and so maintained for a long enough time to affect local 
prices, and thus initiate abnormal movements of trade and pro- 
duction, I regard as the one open question in the theory of money. 
Brought up in the school which held the latter view (Banking 
Principle), my own reading and reflection have confirmed me in 
the belief that there resides in bank money, even under the most 
stringent provisions for convertibility, the capability of local and 
temporary inflation. 

' ' I freely confess that the preponderance of authoritative opinion 
is against the view I hold.'" — F. A. Walker. 
" It can thus be seen, taking all in all, no one system hitherto 
conceived can guarantee the payment of notes. The only effica- 
cious method would be to oblige banks always to keep a reserve 
equal, not only to the total value of their notes in circulation, 
but also to the amount of their deposits. But then, alas, banks 
would be of no further use. They would no longer utilize the 
floating capital of the country, for they would confine themselves 
to uselessly heaping it up in their cellars. They would no longer 
serve to economize money, for the bank note would henceforth 
have but a representative character. Finally, they would no longer 
be credit institutions. If we wish to use credit, we must resign 
ourselves to its disadvantages. It is a mere attempt at the squar- 



80 



PRINCIPLES OF ECONOMICS. 



ing of the circle, to seek to combine at one and the same time 
the advantages of credit and of ready money, for the two are 
mutually exclusive." — Gide, Pol. Econ., p. 316. 

International Trade. 

1. "International exchanges call out chiefly the special advan- 
tages offered by particular localities for the prosecution of 
particular industries." 

This may be illustrated as follows: 



Articles 
Interchanged. 


England. 


Sweden. 




10 days' labor gives X yards. 
12 days' labor gives Y cwt. 


15 days' labor gives X yards. 




1.5 days' labor gives Y cwt. 







" It is not the difference in the absolute cost of production which 

determines the interchange, but a difference in the comparative 

cost." 

This comparative cost has reference to the cost of producing two 
or more articles in the same country, and not to the difference 
of cost of the same article in the different trading countries. 

Note:— Illustrate this statement of comparative costs in the il- 
lustration above. 

2. Causes of differences in the absolute costs of production. 
a. Race element. 

h. Standard of living. 

c. Natural resources. 

d. Climate. 

e. Transportation facilities. 
/ Technical skill, etc. 

3. Obstacles to the free movement of labor and capital. 
a. Greographical distance. 

h. Difference in political institutions. 

c. Difference in forms of civilization, as language, religion, 
politics, social customs, etc. 

4. International Exchanges take the shape of barter. Specie 

scarcely ever represents more than 7% to 10% of sum 
total of exports and imports. 



PRINCIPLES OF ECONOMICS. 



81 



a. Reasons 

1. Amount of coin is not sufficient. 

2. Currency has little circulating power outside its terri- 

torial jurisdiction. 

3. Abnormal conditions in prices would result if all 

payments had to be made in coin. 
General law. 

' ' Every exportation, when it takes the shape of a regular cur- 
rent, necessarily provokes and determines a corresponding im- 
portation, and, e converso." 
The meaning of Balance of Trade. 

a. The Balance of Trade indicates the relation of exports to 

imports of any country. 

b. Illustrated in the foreign trade of the U. S., 1897-1899. 



Calendar Year. 


Exports. 


Imports. 


1897 to June TO, 1898 

1898 to June 30, 1899 


$1,331,482,330. 
1,227,443.425. 


$616,049,654. 
697,077,388. 





c. From 1871-1899, with the exception of the years 1871, 

1872, 1873, and 1883, the balance of trade has been in 
favor of the U. S. 

d. French statistics show that France imported four billion 

francs' worth more than she sold between 1885 and 
1889, or an average excess of imports of 800,000,000 
francs a year. 

e. English statistics are more startling. 

Query: Does such amount of bullion leave the country to settle 

such exchanges? 
Answer: No. Why not? 

(1) The cost of transport of exported goods. 

(2) The interest on capital invested abroad. 

(3) Expenses of foreigners living abroad. 

(4) Bankers' commissions. 

(5) The sale of vessels. 



6 



82 PRINCIPLES OF ECONOMICS. 

Free Trade and Protection. 

1. Exports are said to possess superior advantages. 
a. Profits come to the country exporting. 

h. Causes coin to enter tlie country. 

c. Extends the moral and political influence of the country. 

2. Imports are alleged to possess numerous dangers. 
- a. Profits go the foreigner. 

h. Coin goes out of the country. 

c. Make an importing nation a client of the foreigner. 

d. Too much competition with national industries. 

3. Arguments in favor of Free Trade. 

a. It is the normal and natural condition. 

h. Protective duties bring about an unequal protection, 

c. Protective duties shackle foreign trade and reduce 

amount of exports. 

d. Raise the cost of production. 

e. The incidence of the tariff or tax falls on the consumer, 

advancing the cost. 
/. Protection removes the stimulus of foreign competition. 
g. Protection fosters monopolies. 
h. Protection encourages the establishing of industries under 

forced conditions. 

4. Arguments in favor of protection. 

a. Creates a national spirit, and makes a nation independent. 
h. Causes a diversified industry, giving labor and capital 
greater liberty. 

c. Fosters new industries, which otherwise could not be 

established. 

d. History proves protection has been helpful. 

e. National industries can be protected by graduating the 

duty according to requirements. 
/. A protective system takes into consideration differences 

in industrial, social, and geographical conditions of 

different countries. 
g. Customs-duties (revenues which cost the country nothing) 

are obtained. 
h. Prevents one nation from dislodging another in the world 

of commerce, simply because that nation has superior 

advantages in production. 



PRINCIPLES OP ECONOMICS. 88 

Note: Examine and compare the recasons given above, and 
try to refute. How many do j'ou deem fallacious? 
Grive reasons. 

Claims of the Bounty System.) 

1. It does not enhance the price of products. 

2. System is not so arbitrar}'. 

3. Places protection only where it is needed. 

4. Can be graduated at will to suit changed conditions. 

5. It does not interfere with international trade or domestic 

production. 

6. It is an intelligent sacrifice on the country on the grounds of 

public policy and utility. 

Claims of the Reciprocity System. (Fair Trade.) 

1. Makes trade conform to natural conditions. 

2. Measures equal advantages to the nations affecting the treaty. 

3. Has none of the objections of a protective system, and gives 

as man)' advantages. 

4. Brings nations into more friendly relations, and breaks down 

the Chinese wall of prohibitive tariffs. 
Query: What objections can you offer to either the Bounty 
System or Reciprocity? 

ASPECTS AND ARGUMENTS IN TARIFF QUESTION. 

Infant Industry. — Correct in theory but inconsistent with permanent 
system argument; so abused in practice as to be bad; tends to 
fix itself permanently. 

Dicersified Industries. — Our industries sufficiently diversified any- 
way. In some cases a good argument from educatit)nal point 
of view. For us real question is one of economic profit. 

Commcrcinl Indepcadcnce. — Peace and civilization furthered by 
interdependence. Division of labor as good for nations as for 
individuals. 

Tax on Foreigners. — Temporary success. Consumers finally pay 
most of the tax — commonly not quite all. 

To Hart Foreigners. — Trade helps both sides or there would be no 
trade . 



84 PRINCIPLES OF ECONOMICS. 

To Employ Labor. — Till there are no more unsatisfied needs there 
will be employment under either system. (Under which system 
are temporary derangements most likely?) 

To Offset Diff'erences in Wages. — Need of protection proves low 
relative productiveness. Gleneral level raised only by increased 
social product. Wages can not be increased by tariff at ex- 
pense of interest or profits. 

Ultimate Question, then., is, 
Does Protection Increase Social Product? 

Is the new industry more highly value- creating than the dis- 
placed industry? If so, why can it not without help pay the 
ruling wages? Higher cost of production means merely larger 
displacement of other products. 
Protection Demoralizes Politics. 
But under Monopoly Conditions protection may pay. Of one hun- 
dred apples better destroy fifty where fifty can be sold at three 
cents apiece than sell one hundred at one cent apiece. 
Protection may, under unusual conditions, rest as a heavy tax on 

foreigners. 
May work beneficially to modify distribution, but taxation would 
be a less wasteful method. — Davenport. Outlines of Ec. 
Theo.. p. WO. 

Questions. 

1. " Self-interest governs commerce." Why so? 

2. In strict theory, can a tariff that protects ever be a revenue 
tariff ? 

3. Benj. Harrison in an inaugural address said that we should 
have a tariff sufficient at least to measure approximately the differ- 
ences in cost of production in this and the importing country. 
Comment. 

4. Is the total quantity of imports equal to the total of exports 
in the world? Are the values of the same equal? How does your 
answer, if correct, explain the excess of imports over exports? 

5. Illustrate the gain in trade between the United States and 
England on the following data: 100 days' labor produces X bus. of 
corn in the United States. 200 days' labor is required in England, 



PRINCIPLES OP ECONOMICS. 



85 



125 days' labor produces Y tons of iron in United States. 150 
days' labor is required in England. In which commodity is our 
comparative advantage? 

Readings. 

.7. S. Mill. Pol. Econ. Laughlin. pp. 377-417. 

Gide. Pol. Econ., pp. 236-271. 

Walker. Pol. Econ., Adv. Course, pp. 50.5-517. 

Patton. Pol. Econ.. pp. 191-238. 

Davenport. Ec. Theo., pp. 178-200. 

A. L. Perry, Pol. Econ., Chapter XIII. 

Article "Tariff" in the Internatioual Cyclopedia- 

"Lectures on Protection in the United States," W. <ii. Sumner. 

R. E. Thompson. Pol. Econ., Chapters X-XII. 

Bowen. American Pol. Econ., pp. 480-495. 

Free Trade and Protection. Fawcett. 

The Tariff History of the United states. F. W. Taussig. 



CONSUMPTION. 



Definition. 

Consumption is the act of employing wealth for the satisfaction 
of our wants. 

Kinds. 

1. Productive. 

2. Unproductive. 

The Law of Diminishing Utility. 

"If a person consumes at any given time successive units or 
portions of a commodity, he finds that the later units produce 
less pleasure or satisfaction than the first." 

1. In consumption of goods, a person considers 

(1) The utility of the goods. 

(2) The cost or sacrifice to procure them. 

2. All estimates of utility are based upon the utility of the last, 

or marginal portion of the supply. 

Economy in Consumption. 

1. The theory that "spending makes trade brisk." Examine 

the case of a great "ball " costing $50,000. 

2. Expenditure regulates but does not feed production. Why? 

3. A study of luxurious expenditures. 

a. Are they, economically, a good? 

b. How is a luxury to be defined? 

The Economics of Saving. 

1. Saving to secure an accumulated stock. 

2. Saving for investment in production. 

Query: 1. Is there an economic distinction between saving in 
order to have an income on the stock saved and saving to invest? 
2. What are the conditions affecting saving? 3. What is the 
desirability of saving? 4. Do you deem the family relation the 
greatest incentive to saving? 



PRINCIPLES OP ECONOMICS. 87 

The Conditions of Investment. 

1. Security — a confidence we shall get our money back. 

2. Prospective gain or profit. 

Illustrative Quotations. 

' < Our analysis of the results of saving enables us to see at once 
the absurdity of the idea that reckless and wasteful expenditure 
can be approved because it makes trade good. Saving makes 
trade good and causes a demand for products just as truly as 
does spending. But spending inconsiderately leads to the 
destruction of utilities; savmg, to the ultimate increase of pro- 
duction. Yet many intelligent people and many important 
newspapers often excuse extravagance and profusion on the 
ground that they make trade good, and give employment to 
labor." — Bullock, Intro, to Ec, p. 109. 

"Luxury, in fact, is to devote a sum of money, or more scien- 
tifically speaking, a relatively large amount of labor, to the 
satisfaction of a relatively superfluous want." — Gide, p. 370. 

' ' The amount of wealth in a country being given, the proportion 
of this wealth which shall be invested in industrial operations 
with a view of profit will depend, first, upon the strength of 
those qualities in the average character of its inhabitants which 
lead to productive investment — what Mr. Mill calls ' the efliect- 
ive desire of accumulation ;' and secondly, on the opportunities 
of industrial investment open to the community offering a rate 
of profit sufficient to call this principle into activity — in a word, 
on 'the extent of the field for investment.'" — Cairnes, Pol. 
Econ. , p. 169. 

Readings. 

Gide. Pol. Econ.. pp. 359-397. 
Bullock. Intro, to Ec, pp. 87-113. 
Marshall. Prin. of Ec, pp. 1,59-813. 
Walker. Pol. Econ., pp. 292-329. 
Andrews. Inst, of Ec, pp. 79-82; 190-199. 



DISTRIBUTION. 



Definition. 

Distribution is that department of political economy which con- . 
earns itself with the division of the wealth-product among the pro- 
ducers of it. 

Query: 1. Why did the classical school hold that there was no 
problem of a better distribution of wealth? 2. Does a person 
receive a share of the wealth-product in proportion to the amount of 
socialability he has supplied; i. e., to the services he has rendered? 

3. If you accept this statement, would value depend upon labor? 

4. Why do most of the proposed reforms come within the field of 
distribution? 

Formulae for the Division of the Wealth =Product. (Socialist 
Systems.) 

1. An equal share to each person. The theory question: 

(1) It is a negation of all sharing. 

(2) It is not founded on any principle of justice. 

(3) It could not possibly apply to a complex society. 

(4) It could not apply to but few forms of wealth. 

2. To each person according to his wants. The theory ques- 

tioned : 

(1) Who could measure a man's wants? 

(2) The amount of wealth is far too small to be so divided. 

(3) Who would have the nicety of judgment to determine 

what desires would be lawful and which unlawful? 

(4) As a matter of fact, this system would, also, be a nega- 

tion of all sharing. 

3. To each man according to his capacities. The theory ques- 

tioned: 

(1) Who is so infallible as to measure each man s capacities 

and merits? 

(2) Intellectual or physical superiority of itself ought not to 

be a claim to wealth. 



PRINCIPLES OF ECONOMICS. 89 

(3) A distribution of wealth under a Board of Government 

Commissioners would give rise to more difficulties and 
injustice than under the present system. 

(4) It is not founded on any principle of justice. 

4. To each man according to his labor. The theory questioned : 

(1) It would lead to a complete revolution of our social and 

economic institutions. Why? 

(2) It would do away with all charitable work and eleemosy- 

nary institutions. Why? 

(3) If the formula means 'to each man the product of his 

labor," how could each person's work be determined 
when division of labor pla3's so important a part? 

(4) Is it possible to find a common measure of work, say an 

hours labor f Is it possible to measure sacrifices in 
terms of hours? 

(5) What might be very advantageous to the individual 

laborer might prove exceedingly injurious to society as 

a whole. 
Query: Do any of these maxims of distributive justice appear to 
be practicable? Do you believe it possible to distribute the wealth- 
product by a formula? 

Illustrative Quotations. 

"Stanley Jevons has compared the process of production in 
which the three factors of production are joined together, to the 
kitchen of the three witches in Macbeth, who throw into their 
cauldron and stir up therein the most heterogenous substances 
for the purpose of brewing their ' hell- broth.' In such a blend 
as this how are we to set about finding what each man's share 
should be? What analysis shall we use, and what law shall we 
follow, so as to arrive at this determination? ' — Gidc. Pol. 
Econ. , J). Jf.28. 

"As to the amount of truth or morality which these several 
maxims embody, I am not concerned here to inquire. My busi- 
ness with them has reference exclusively to their efficacy as ruks 
for regulating the distribution of wealth. But in proceeding to 
examine them with this view, I am anxious to disclaim all desire 
to disparage the ideals of human life which they suggest, pro- 



90 PRINCIPLES OF ECONOMICS. 

vided they be regarded simply as ideals — as a goal toward 
which one may work and strive, due consideration being had 
of the actual circumstances of the external world, and of the 
character, as heretofore actually developed, of human being 
residing upon it: indeed, so far from this, I have no hesitation 
in admitting that the realization of any one of them would 
imply a condition of society incomparably superior to any that 
now exists, or is likely for a long time to exist. 

The agencies in operation are essentially out of the moral sphere ; 
and if it should in fact happen the results arising from their free 
action in any given case prove to be in strict accordance with the 
claims of moral justice, and with so-called 'natural rights,' I do 
not see that we should be justified in regarding the coincidence 
as other than a fortunate accident." — J. E. Cairnes, Pol. JScon., 
p. 2 4. 

' ' We must repeat that present distribution is based on the law of 
supply and demand, which of itself is neither moral nor im- 
moral, and which is as perfectly indiflferent to all our thoughts 
of justice as the sun which shineth on the just as on the unjust. 
That is why there is a social question. 

The gravity of the problem does not arise so much from the 
unequal distribution of goods — for that might fairly easily 
be overcome — as from their insufficiency. The enunciation of 
the fact leads to this: whatever mode of distribution may be 
proposed, it should always be subordinated to the mode of pro- 
duction: however conformable the plan might otherwise be to the 
ideal of distributive justice, it should be sternly rejected if it 
might lead to a diminution of production. The sine qua non is 
not to discourage productive activity. On this reef we shall 
find that all socialist systems founder." — Gide. 

Schemes of Distribution. 

1. Individualistic. Based on private property. 

2. Collectivistic. Based on the right of the state to own and 

control all agents of production. 

3. Communistic. Based on communal rights. 



PRINCIPLES OF E(»NOMICS. 91 

4. Co-operative. Based on joint individual enterprise, aiming 
to do away with influence of capitalist class, and to elim- 
inate entirely the entrepreneur. 

Examination of the Communistic System. 

1. Necessary conditions. 

a. A small social unit, 500 to 2,000. 

h. Strictest obedience is obligatory. 

c. Some predominant sentiment, generally religious. 

2. Objections generally cited. 

a. Evasion of work. The " master's eye. " 
h. Prudential restraint on numbers removed. 

c. Apportioning the labor of the community. 

d. Does not answer for the multiform development of human 

nature. 
8. Communistic societies of the United States. 

a. Noted communities: Shakers, Economists, Amana, Inspi 
rationists, Icarians, Bethel, Perfectionists, Zoarites, 
Brook Farm. 

h. Facts concerning them taken from Chas. NordhofT's "The 
Communistic Societies of the United States." — Harper 
(fc Bros., New York. 

1 . Eight societies, constituting not less than seventy-two 

communes. 

2. Oldest has existed over ninety years. 

3. Numbered in 1874 about 5,000 persons, owned prob- 

ably 180,000 acres of land, with estimated wealth, 
.112,000,000. 

4. Enjoyed a greater security, more comforts, less want 

and demoralization, better schools, less exposure for 
women, the aged and infirm, than the surrounding 
population. 

5. Icarians are French ; Shakers and Perfectionists, 

American ; the others are German. 
G. All have some form of religious belief as their bond. 

The Icarians reject Christianity. 
7. Perfectionists oppose family life.. 



92 PRINCIPLES OF ECONOMICS. 

8. At Tcaria and Amana (Iowa Societies) they eat in a 

common dining-hall. 

9. Tlie Shakers and Rappists are celibates. The Tcarians 

forbid celibacy. 

10. They are all exclusive. 

11. Agriculture is the industrial base, with the exception 

of the Perfectionists. 

12. Most of the societies are pure democracies. 

Illustrative Quotations. 

"That communistic societies will rapidly increase in this or 
any other country, I do not believe. The chances are always 
great against the success of any newly formed society of this 
kind, but tliat men and women can, if they will, live pleasantly 
and prosperously in a communal society is, I think, proved 
beyond a doubt; and thus we have a right to count this another 
way by which the dissatisfied laborer may, if he chooses, better 
his condition. " — Nordhoff. 

" All communistic societies are evidently suffering from the 
difficulties due to the absence of family life, from the increasing 
spirit of personal independence which carries away the younger 
members of the organizations, and the want of that executive 
ability which distinguishes the successful manager in private 
enterprises. " — Laughlin. 

Examination of the Co=operative System. 

1. The essence of co-operation is the combination in the same 

individuals of the functions of labor and capital. 

2. Forms of co-operation. 
a. Productive. 

I). Consumptive or distributive. 

3. Claims of the System. 

a. A greater share of the wealth-product to the laborer. 
h. Secures to the laborer greater independence. 

c. Do away with the friction between laborer and capitalist, 

as seen in strikes, boycott, etc. 

d. The laborer would be incited to greater industry. 

e. Would encourage frugality and the disposition to save. 
/. Would be a saving in tools and materials. 

g. AVould exert a moral influence that our present system 
fails to develop. 



PRINCIPLES OF ECONOMICS. 93 

4.- Difficulties of the System. 

a. Failure to bring the requisite intelligence and business 

skill to bear. 
h. Lack of sympathy for the movement, especially in tbe 

United States. 

c. Unsteady employment and heterogeneous character of our 

population. 

d. The masses are generally poor financiers and poor book- 

keepers. 

e. Venality and corruption among the masses. 

/. Lack of CO operation among the various co-operative 

societies. 
ff. Little encouragement in our legislation. 
5. A study of co operative enterprises in the United States, 
Chapter VII. of Richard T. Ely's "The Labor Move- 
ment in America." 

Illustrative Quotations. 

"The marked effect of co-operation, as is shown amongst the 
workers in this factory, would convince any one that it works 
good results in the whole morale of the man. So much does 
every one in the factor}^ feel interested that it requires no 
watching, no ordering, no admonitions, but all are on the alert 
to do and keep everything the best." — ,/. jR. Lt'<hj<ird. Ken- 
tucky Raihodd Tobacro Co. of Covington. 

' ' I shall be heartily glad to see the working classes rise to 
the height of the occasion, and vindicate their right to rule in 
industry by showing their power to do it. But meanwhile it 
must be distinctly understood that nothing costs the working 
classes so much as bad or commonplace conduct of business ; 
that industry must be energetically, economically and wisely 
managed, no matter who is to do it; and that co-operation will 
be successful only as it results in the production of equally good 
articles at equally low prices, as those produced under entre- 
preneur management. " — F. A. Wdlker, Pol. Earn., p. SJf.8. 

Private Property. 

1 . The right of private property is the main principle tJiat regulates 

the distribution of wealth in our present societ3^ 

2. The right of private property is the -light of dominion in a 

person over a thing to the exclusion of all other persons. 



94 PRINCIPLES OP ECONOMICS. 

3. Evolution of this right. 

(1) Personalty alone first subject to this right. 

(2) History shows the earliest laud- holdings were com- 

munistic. 

(3) Priority of occupation gave a weak title of ownership, 

which was ripened by prescription. 

(4) Legislation finally sanctioned custom. 

(5) Institution remains on the basis of convenience, policy and 

convention. 

4. The right of private property involves: 

(1 ) The right to use and enjoy. 

(2) The right to destroy. 

(3) The right to sell, lease or loan. 

(4) The right to dispose of by gift. 

(5) The right to dispose of by will. 

Illustrative Quotations. 

' ' The individual right of property, as appears from a closer 
study of ancient law, seems to be a comparatively modern con- 
ception. Ancient law knows next to nothing of individuals, 
it is concerned not with individuals, but with families: not with 
single human beings, but groups. It is more likely that joint 
ownership and not separate ownership prevailed in primitive so- 
ciety." — Fishhack. El. Law, p. SJf. 

' ' The laws and conditions of the Production of Wealth partake 
of the character of physical truths. There is nothing optional 
or arbitrary in them. It is not so with the Distribution of 
Wealth. That is a matter of human institution solely. The dis- 
tribution of wealth depends on the laws and customs of society. 
The rules by which it is determined are what the opinions and 
feelings of the ruling portion of the community make them, and 
are very different in different ages and countries, and might be 
still more different, if mankind so chose. 

" Private property, as an institution, did not owe its origin to 
any of those considerations of utility which plead for its mainte- 
nance of it when established." — J. S. Mill. Pol. Econ., p. 155. 
"All property is founded on adverse possession ripened by 
prescription." — Savigny. 
" The true basis of the right of property is not an instinctive 



PRINCIPLES OF ECONOMICS. 95 

bias towards the institution of property, but a presumption aris- 
ing out of the long continuance of that institution that everythiny 
ought to have an owner. The occupant, in short, becomes the 
owner, because all things are presumed to be somebody's prop 
erty, and because no one can be pointed out as having a better 
right than he to the proprietorship of this particular thing." — 
Sir Henry Maine. 

"Let our final and clenching argument be that which we 
urged in favor of the right to give; to-wit, the fear of irretriev- 
ably injuring productive activity by preventing owners from dis- 
posing of their property for the benefit of their children. For 
the honor of human nature, it must be said that there are very 
few men in the world who work and save far less for themselves 
than for others. If we compel them to think of themselves, 
they will work less and spend more. By depriving men of the 
right of disposing of the fruits of their own labors, we should 
break one of the most powerful springs of production." — Gide. 
p. JfSS. 

Questions. 

1. The right of private property is based upon labor by Bastiat. 
Examine this theory. 

2. A theological school maintains that the right of property is 
based on Scripture. "God the grantor, Adam the grantee; the 
earth, the thing granted, in consideration that the grantee should 
subdue the earth, etc." Examine titles on this theory. 

3. Could the state lawfully abolish private property rights, laws 
of inheritance, etc. ? 

4. On what grounds can you defend collateral inheritance? 

5. Cffisar in speaking of the customs of the Germans wrote that 
no one owned certain lands, but the magistrates each year allotted 
each tribe as much as seemed best, and compelled them the next 
year to pass over to another. What causes can you suggest for this 
S3'stem of land-tenure? 

6. Explain briefly the Feudal System. AVhat caused its decline? 

7. What is meant by allodial tenure? 

8. Give what arguments you can for the legitimacy of landed 
property. 



96 



PRINCIPLES OF ECONOMICS. 



Readings. 

Mill. Pol. Econ., Laughlin.s Edition, pp. 15.5-174. 
Gide. Pol. Econ., pp. :^08-464. 
Bullock. Intro, to Study of Ec, pp. 450-468. 
Henry George. Progress and Poverty. 
Walker. Pol. Econ., Adv. Course, pp. 341-^51. 

The Various Classes of Sharers. 

I.Walker's classification. 



Name. 


Share. 


Why Hk Gets It. 


(1) Capitalist. 


Interest. 


For saving or abstinence. 


(2) Landlord. 


Rent. 


Difference in productivity of soils. 


(3) Entrepreneur. 


Profit. 


What he saves to production by his 
mastership. 


(4) Laborer. 


Wages. 


" Residual Claimant." 


(5) Minor Sharers. 


Stipend. 


Services rendered to the other shar- 
ers. 



2. Gide's classification. 



Name. 


Share. 


Example of. 


(1) Autonomous 


Fees. 


Peasants. Land-owners. Shop-keep- 


Producers. 




ers. Liberal Professions. 


(2) Employers and 


Profit. 


Capitalists. 


Capitalists (in- 






cludes the en- 






trepreneurs.) 






(3) Proletariat. 


Wages. 


Workmen. Domestic Servants. Pub- 
lic Servants. 


(4) Annuitants, or 


Income or 




people of in- 
dependent 


interest. 


House-renters. Stock-holders. 






means. 






(5) Indigent, or 


Alms. 


Partakers of public or private char- 


pauper classes. 




ity. 



Th e Capitalist or Employer. 

1 . Who is the capitalist in strict economic meaning ? 

2. Objections given by socialists to capitalist class. 

3. Functions of entrepreneur and capitalist distinguished. 

4. Shall the entrepreneur be retained in our industrial system? 
Why? 



PRINCIPLES OF ECONOMICS. 97 

Elements in Profits. 

1. The interest on capital (remuneration for saving). 

2. Premium of insurance (element of risk). 

3. The wages of the employer's labor (initiative, direction, and 
control). 

The Question of Interest. 

1. Tendency is to decline. Causes. 

2. How low can the rate fall ? 

3. Causes of different rates in the same market. 

a. Degree of risk. 

h. Imperfect competition in the money market. 

c. Disinclination of capital to emigrate. 

4. Should the state fix a maximum rate of interest ? (Usury.) 
Arguments pro and contra. 

(1) Capital should be treated as any other commodity. 

Let the law of demand and supply operate. 

(2) Usury laws are evaded, hence they put a premium 

upon dishonesty and trickery. 

(3) The law should protect the borrower, since he is at the 

mercy of the lender. 

(4) Trade would be benefited hy a greater plentifulness of 

capital, and by greater ease of borrowing. 
(Consult the subject '-Usury" in Cyclopedia or dic- 
tionary of Political Science. ) 
Is there a law of profits ? 

Profits will depend upon the amount of mastership, skill, 
and intelligence brought into an enterprise. Through 
this superior ability the gross income will be deter- 
mined and also the residuum or net income by reduct- 
tion of expenses, etc., to a minimum. 
The Landlord. 

1. Gide discusses this sharer under the title, "The Eight to be 

Idle." 

2. The right is justified by the recognition of private property 

in lands. 



98 PRINCIPLES OF ECONOMICS. 

3. Dr. Spahr's essay on " The Present Distribution of Wealth "^ 

presents some interesting facts: (1) 2,650,000 persons in 
the United Kingdom own 10,700,000,000 of private prop- 
erty, while 6,000,000 families, three-fourths of the popu- 
lation, have no registered property whatever. (2) Less 
than two per cent of the families of the United Kingdom 
hold three times as much private property as all the re- 
mainder, and 93 per cent of the people hold less than 8 per 
cent of the accumulated wealth. (3) In 1893, out of 
330,000 families in New York City, two-thirds were 
property- less. (4) One per cent of our families receive 
nearly one -fourth of the whole income of the country: 50> 
per cent receive barely one-fifth. 

4. Rent defined. 

Rent is the remuneration received by the land-owning class 
for the use of native and indestructible powers of the soil, 
or as it might be expressed, for the use of natural agents. 
— Walker. 

Rent is the measure of difference in desirability between 
better lands and marginal lands. — Davewport. 

5. The law of rent. 

(1) Economic rent arises out of the differences of produc- 

tivity of soils under cultivation at the same time, for 
the purpose of supplying the same markets. 

(2) The amount of these differences determines the rent. 

Illustrate by hypothetical case. 
Query: 1. How far does this theory conform to actual con- 
ditions ? 

2. Does the single tax advocate argue that what the state 

should take is the economic rent ? 

3. Suppose the earth were a flat surface and of uniform 

fertility, would there be any economic rent ? 
Note: — A good discussion of the theory of economic rent 
with arguments for and against will be found in Walker's 
Advanced Political Economy, pp. 394-433. 



••*. 



PRINCIPLES OF ECONOMICS 99 

The Wage-Earner. 

1. Kinds of wages. 

a. Real — computed in the necessaries and comforts of life. 
h. Nominal — computed in money. 

2. Theories of Wages. 

a. The Productivity theory. 

"Demand for labor is evidently a demand for there- 
suits of labor ;— for the commodities which it produces. 
The demand for labor must then find a limit at the 
point where the wage payments approach equality with 
the increase in the value of the product due the laborer. 
We come, therefore, to the general proposition that 
wages are at the maximum limited by the value of the 
laborer's own contribution to the value of the product. " 
This theory is supported by Walker, Glide, Davenport, 
Jevons and others. 

b. The theory of the Law of Brass. 

1. "Wages must be regulated by the value that is abso- 
lutely necessary for the support of the laborer and his 
family, or more generally for the subsistence and propa- 
gation of the laboring population. 

2. This theory makes labor a commodity, and demand and 
supply, and cost of production apply to it as to any other 
commodity. 

3. Objections to the Law of Brass. 

a. Laborer is placed in a helpless condition. If he works 

harder or better, what of it? 

b. To reduce his expenses would make his lot harder. 

c. Progress in production would not benefit him. 

d. Does not explain differences in wages in the same or 

different countries. 

e. Does not explain why wages are higher to-day than 

they were a century ago. 

c. The Theory of the Wages Fund. 

1. This theory claims that there is a determined fund of 
capital to be paid to laborers, and their wages is the 
ratio of numbers of workmen to the amount to be dis- 
tributed. 

L«rc. 



100 PRINCIPLES OF ECONOMICS. 

2, Objections. 

a. The dividend is not pre- determined. It must be the 
aggregate of individual sums, or nothing. Does 
each employer have a wage-fund of his own? 

h. The divisor is not represented by the total population 
of the country. 

c. This theory demands that wages can vary only as one 
of two factors varies, both of which may be consid- 
ered as unknowns. 

Note: For complete discussion of the Wages-Fund doc- 
trine, consult J. E. Cairnes' Political Economy, pp. 
149-188. 

The Improvement of the Wage -Earners* Conditions. 

1. Strikes. 

2. State-interference (Factory legislation, etc. ) 

3. Cooperation. 

a. Profit-Sharing. 
h. Trades- Unions. 
Note: Consult Gide's Pol. Econ., pp. 506-525; Cairnes' Pol. 

Econ., Part II, Chapters III and IV. Walker's Adv. 

Pol. Econ., pp. 375-394. 

Illustrative Quotations. 

' ' For we may ask, in virtue of what right does the master appro- 
priate for himself a value which is the product of the labor of his 
workmen? The master replies, that the article produced is alto- 
gether his work, for without his initiative it would not exist at 
all; if he has not made it, at any rate he has had it made. He 
first conceived the idea of it, and that is the primordial and es- 
sential act of all production; he, too, has supplied the means of 
executing it. Who, then, should have more right to the article 
than he has? " — Gide. 

" The wages-earner and the master are a pair of characters whose 
lot is altogether different, but whom fate has inseparably bound 
together; there is little love lost between them, but they can not 
obtain a divorce. The man who possesses nothing but his arms 
can produce nothing whatsoever, unless he receives an instru- 



PRINCIPLES OF ECONOMICS. 101 

ment of production; but, under the present economic organiza- 
tion, no one can supply him with this instrument save the land- 
owner or the capitalist. " — Ibid. 

" The question of wages is confused, as are many other economic 
questions, by a misunderstanding of the meaning of demand and 
supply. To say that the value of any commodity is fixed by the 
equation of demand and supply is a correct and a safe enough 
proposition. But to suppose that the more laborers there are, 
the lower wages will be, or that the fewer hours or the more 
lazily they work, the higher wages will be, is grossly to pervert 
the meaning of the demand and supply doctrine. The demand 
for labor, and the wages at which this demand will employ the 
labor, depend upon the value of the product which the laborers 
will bring to the employer. If a farm hand adds to the crop by 
only one bushel of wheat a day, it is certain that his wages will 
not stand at two bushels of wheat per day. 

"So if the population of any one city or of the world should 
double, wages would not fall by a half, unless the average pro- 
ductiveness of labor fell as a result of the overcrowding and of 
the attendant disadvantages of opportunity." — Davenport^ El. 
Econ., p. 111. 

Questions. 

1. Who would be the sharers of distribution in a socialistic sys- 
tem? How would each one's share be determined? In a co-opera- 

ive system? 

2. Why is a system where the autonomous producer is numerous 
a most favorable system for the distribution of wealth? 

3. Karl Marx said that such a system is only compatible with a 
narrow and limited state of production and of society. Comment. 

4. What has caused the independent workers to decrease in num- 
bers? How long will this continue? 

5. Walker makes profits (share of entrepreneur) conform to 
some law as rent. Explain. 

6. Ricardo held that the rate of profits (interest) always varies 
in inverse ratio to the rate of wages. Examine the soundness 
of this. 

7. Why is it not economic to say that interest is money paid 
for the use of money? 



102 PRINCIPLES OF ECONOMICS. 

8. " Rent forms no part of the price of agricultural products." 
Prove the proposition. 

9. Suppose land-lords should become philanthropic and remit 
their rents; would this act have any influence on price? 

10. What is "ground-rent"? Does the Ricardian law of rent 
apply at all? 

11. Do rents tend to rise or fall with increase of population? 
With improved machinery? 

12. In the discussion of rent is the cost of transportation to 
market taken into account? 

13. Shall we say that the rise in prices results from the cultiva- 
tion of the poorer land, or that cultivation results from the rise in 
prices? 

14. You have heard it said that wages is purely the result of 
contractual relation between the employer and laborer, and follows 
supply and demand. What objections can you give? 

15. What are the benefits of trades-unions to the laborer? 
What dangers, if any? 

16. Are strikes justified? Are they generally beneficial? 

17. In what ways has the state interfered in the interests of the 
wage-earner? 

18. What objections can you state to organized private charity? 

19. Why are the wages of women usually low? 

20. What were the English Poor Laws? 

' (A very complete bibliography of American and foreign writings 
on general and special subjects in Political Economy will be found 
in " Bullock's Introduction to the Study of Economics," pp. 485-501.) 



TAXATION. 



Definitions. 

A tax is a governmental demand upon the resources of persons, 
whether natural or artificial. 

A rate is proportioned when the same per cent is levied on all 
property. 

A rate is apportioned when the total amount to be raised is 
ascertained and then distributed, share for share, on each unit 
of the base. 

A tax is progressive when the rate increases more rapidly than 
the base. 

Customs duties are indirect taxes levied on the goods imported 
into or exported from certain countries. 

Tariff rates are either (1) ad valorem, the per cent computed on 
the value of the goods as shown b}- invoice, or (2) specific, being 
computed on some unit, per yard, ton, gallon, etc., irrespective of 
the value of the goods. 

Impost is a general term for any tax, but the tendency is to 
make it synonymous with indirect taxes. 

Excises (English) or Internal Revenue (American) are indirect 
taxes levied on domestic manufactures. 

A tax is said to be shifted when the tax- payer reimburses him- 
self from some one else. The final incidence of the tax is the 
falling of the burden upon some person who does not shift it. 

Direct and Indirect Taxes Distinguished. 

1. A direct tax, in the expectation of the law-maker, makes the 
taxpayer the tax-bearer. No shifting of the tax is intended. 

2. Direct taxes are such as are regulai'ly laid according to some 
fixed fact — as of personalty, rank, earning, property, etc., 
— and are assessed according to some list or roll. 

Adam Smith's Canons of Taxation. 

1. The subjects of every state ought to contribute to the sup- 
port of the government as nearlj as possible in proportion to 
their respective abilities. 

103 



104 



PRINCIPLES OF ECONOMICS. 



2. The tax which each individual is bound to pay ought to be 
certain, not arbitrary. 

3. Every tax ought to be levied at the time or in the manner in 
which it is most likely to be convenient for the contributor 
to pay it. 

4. Every tax ought to be so contrived as both to take and to 
keep out of the pockets of the people as little as possible 
over and above what it brings into the treasury of the State. 

Classification of Revenues (Seligman.) 

'Gratuitous 

r Public Property 
Contractual } 

( and Industry Prices 



Revenues ^ 



Eminent Domain — Expropriation 
Penal Power — Fines and Penalties 



Compulsory -| 



iFees 
Special Assessment 
Taxes 



Principal Theories of Taxation. 

1. Benefits-theory. 

2. Faculty or Ability -to- Pay theory. 

Some Forms of Taxation and their flerits. 

1. General Property tax. (Realty and personalty). 

2. Import and Export duties. 

3. Tax on products of domestic manufacture. 

4. Tax on expenditures. 

5. Tax on incomes. 

6. Single tax on land values. 

7. Inheritance taxes. 



PRINCIPLES OF ECONOMICS. 105 

8. Tax on doors and windows. 

9. Tax on trades and occupations (licenses). 
10. Capitation tax. 

The Defects of the General Property Tax, 

1. Lack of uniformity, or inequality of assessment. 

2. Lack of universality, or failure to reach personal property 

3. Incentive to dishonesty. 

4. Double taxation (question of exemption of debts). 

5. The tax regressive. 

Consideration of the Single Tax on Land Values. 

Defects suggested by Prof. Seligman. 

1. Fiscal. 

a. No reserve power which can be drawn on in time 

need. 
h. Shrinkages or deficits can not be made good by in 

crease of another class. No elasticity, 
c. Intensifies the inequalities resulting from unjus 

assessments. 

2. Political. 

a. Means a total abolition of all customs duties, whether 

for protection or for fiscal purposes. 
h. Render impossible to use the taxing power as 

political or social engine ; e. g. , bank notes, liquors 

oleomargarine, etc. 
c. Would take away the sense of the citizen's obligatioc 

to the government. 

3. Ethical. 

a. Not an equitable tax. It exempts too many. 

h. The "unearned increment" theory applies to many 
other values besides land. 
" On what possible theory of justice shall we tax the 
man who has invested $100,000 in land which the 
next year appreciates fifty per cent, and on the 
other hand exempt the man who has invested 
$100,000 in the stock of the sugar trust which the 



106 



PRINCIPLES OP ECONOMICS. 



next year may also enhance fifty per cent ? Why 
should the earnings invested in land be taxed and 
the earnings invested in the sugar trust be wholly 
untaxed ? 
4. Economic. 

a. Would work a hardship in new communities. 

h. Would prove an inadequate fiscal system. 

c. Its administration would be next to impossible. 

[' 1. Customs duties on Imports 
I' a Indirect^ {no export duty allowed) 

I [^2. Internal Kevenue 



' Federal -\ 



Systems of 
Taxation in 
the United 
•States. 



h Direct {Can he levied only in proportion to 
1^ popidation) 



State 



a G-eneral 
Property 
Tax 



I 



1 Realty 

2 Personalty 

{In some states corporations are 
taxed as individuals) 



Questions. 



l^ h Licenses or fees 



1. The chief objections to the "benefits theory " of taxation is 
(1) that benefits can not be quantitatively measured, hence we have 
no base to compute the percentage. (2) that if benefits or protec- 
tion was the base of taxation, the poor man should pay more than 
the rich man. Comment. 

2. How can the United States levy direct taxes ? Why was the 
Income Tax of 1894 declared unconstitutional ? 

3. Does the National Grovernment and the State Government in 
the United States maintain entirely distinct methods of taxation ? 

4. What is double-taxation ? Illustrate. Is double taxation 
illegal or simply not economic ? 

5. " The taxation of a mortgage debt in the hands of the 
mortgagee, and also of the property in the hands of the mortgagor, 
is not double taxation." — Meyer vs. Dubuque County, Jf9 Iowa, 193. 

How would an economist view this decision ? 



PRINCIPLES OF ECONOMICS. 107 

6. Upon. whom is the incidence of the tax in the following cases: 
Duties on imports? Tax on inheritances? Land tax? Poll tax? 

7. Upon what goods does the United States levy taxes under 
the internal Revenue System? 

8. A complete divorcement of State and local taxation is advo- 
cated by some to cure the evils of our general property tax system. 
How would this be done? What are the merits? 

9. Should assessors be township or county oflQcials? 

10. Investigate the Income Tax Systems of England and Prussia, 
and compare them. What have you to say in favor of the Income 
Tax? 

11. What is meant by the Nationalization of Land? 

12. The Single Tax School of Henry George is oftentimes op- 
posed on the ground that its principles would result in the confisca- 
tion of land and the destruction of private property rights. Do you 
consider this a serious objection? 

13. What is the justice of an inheritance tax? 

14. State different methods or bases for taxing corporations. 

Illustrative Quotations. 

" If we sum up the inherent defects, it will be no exaggeration 
to say that the general property tax in the United States is a 
dismal failure. No language can be stronger than that found 
in the reports of the officials charged with the duty of assessing 
and collecting the tax." — Sdigman^ Essays in Taxation, jJ- 36. 

< ' Another weakness of the general property tax system is its 
lack of universality or a failui'e to reach personal property. It 
is a strange fact that the taxation of personal property is in 
inverse ratio to its quantity; the more it increases, the less it 
pays. It is scarcely necessary to give figures to substantiate 
these statements, but a few may be of interest. From 1860 to 
1880, real estate in the United States increased from 6,973 
millions of dollars to 13,036 millions, while that of personal 
property decreased from 5,111 to 3,866 millions. In 1890 real 
estate had grown to 18,956 millions, while that of personal 
property was 6,516 millions, less than the figures of thirty years 
before. In California, in 1872 personal property was assessed 
at 220 millions; in 1880, 174 millions; in 1887, 164 millions; a 



108 PRINCIPLES OF ECONOMICS. 

net decrease in fifteen years of 56 millions. Real estate increased 
during the same period from 417 to 791 millions. In Illinois, 
in 1882, personal property paid 22% of the taxes; and in 1894, 
only 17^%. In Cook county, including Chicago, personal prop- 
erty paid only 14% and in Kankakee county only 11%. In 
1893, in the state of Iowa, although real estate valuation 
increased over the preceding year by 32 millions, the assessed 
valuation of personal property actually decreased. In some 
instances, the City of Brooklyn for example, personal property 
paid a little more than 3% of the whole tax on property, and in 
1895 it paid but 1.23%. These striking figures become ridicu- 
lous when it is remembered that in the present civilization the 
value of personal property exceeds that of real estate as under- 
stood by the taxing power. And there is not much disagree- 
ment as far as legal exemptions are concerned between real and 
personal property in the various commonwealths. Thus it seems 
that the more differentiated an industry becomes and the more 
predominant the personalty, the less does the latter contribute 
to the public charges. The general property tax thus sins 
against the principle of the universality of taxation even more 
than against the principle of uniformity." 

' ' The economic theory upon which the demand for a single tax 
is based may be summed up as follows: Land is the creation of 
God. It is not the result of any man's labor. No one, there- 
fore, has a right to own land. Increase in the value of land 
like the land itself is not the result of any individual effort. It 
is an unearned increment which properly belongs to society. It, 
therefore, becomes the duty of the government to take what 
rightfully belongs to the whole community." 

Readings. 

" Principles of Political Economy." J. S. Mill, Laughlin, pp, 537-595. 

" Political Economy." Walker's Adv. Course, pp. 407-448. 

"Introduction of Public Finance." Carl C. Plehn. (A splendid boolf for 
beginners.) 

"Essays in Taxation." E. R. Seligman. (An exhaustive work. May well fol- 
low Plehn.) 

"Public Finance." H. C. Adams. 

Note: A splendid bibliography on the subject of taxation will be found in 
Seligman's Essays. 



PRINCIPLES OP ECONOMICS. 109 

SCOPE OF POLITICAL ECONOMY ILLUSTRATED BY COURSES 
OFFERED IN THE UNIVERSITY OF CHICAGO AND IN 
HARVARD. 

In the University of Chicago. 

1. Principles of Political Economy. 

2. Advanced Political Economy. 

3. Economic and Social History. 

4. Processes of Leading Industries. 

5. History of Political Economy. 

6. Scope and Method of Political Economy. 

7. Economic Theory. 

8. Unsettled Problems of Economic Theory. 

9. Social Economics. 

10. Practical EcDnomics. 

11. Socialism. 

12. Economic Factors in Civilization., 

13. Finance. 
14.BIlailway Transportation. 

15. Comparative Railway Legislation. 

16. Railway Accounts, Exchanges, Etc. 

17. Tariff History of the United States. 

18. Problems of American Agriculture. 
19. [-Financial History of the United States. 
20. Money and Practical Economics. 
21.nBanking. 

22. Statistics. 

23. Colonial Economics. 

24. Natural Resources of the United States, 

25. Seminars. 

In Harvard University. 

1. Outlines of Economics. 

2. History and Literature of Economics. 



110 PRINCIPLES OF ECONOMICS. 

3. Economic Theory in the Nineteenth Century. 

4. Methods of Economic Investigation. 

5. The Principles of Sociology. 

6. Socialism and Communism. 

7. The Medieval Economic History of Europe. 

8. The Modern Economic History of Europe and America, 

9. The Economic History of the United States. 

10. The Labor Question in Europe and the United States. 

11. Statistics — Studies in Demography. 

12. Railways and Other Public Works under Public and Corpo- 

rate Management. 

13. Financial History of the United States. 

14. Financial Administration and Public Debts. 

15. The Theory and Methods of Taxation. 

16. Banking and the History of Leading Banking Systems. 

17. International Payments and the Flow of Precious Metals. 

18. Economic Thought and Life of the Ancient World. 

19. Commercial Crises. 

20. Tariff History of the United States. 

21. Workingmen's Organizations in the United States. 

22. Ethnology in its Application to Economic and Social Prob- 
lems. 

23. Seminars. 



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